NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Banks, Sovereign Debt, and the International Transmission of Business Cycles

Luca Guerrieri, Matteo Iacoviello, Raoul Minetti

Chapter in NBER book NBER International Seminar on Macroeconomics 2012 (2013), Francesco Giavazzi and Kenneth D. West, organizers (p. 181 - 213)
Conference held June 15-16, 2012
Published in August 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research
in NBER Book Series NBER International Seminar on Macroeconomics

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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Document Object Identifier (DOI): 10.1086/669586

This chapter first appeared as NBER working paper w18303, Banks, Sovereign Debt and the International Transmission of Business Cycles, Luca Guerrieri, Matteo Iacoviello, Raoul Minetti
Commentary on this chapter:
  Comment, Knut Anton Mork
  Comment, Marius Jurgilas
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