NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Luca Guerrieri

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August 2012Banks, Sovereign Debt and the International Transmission of Business Cycles
with Matteo Iacoviello, Raoul Minetti
in NBER International Seminar on Macroeconomics 2012, Francesco Giavazzi and Kenneth D. West, organizers
Banks, Sovereign Debt and the International Transmission of Business Cycles
with Matteo Iacoviello, Raoul Minetti: w18303
This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector.

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Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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