NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Euro and The Geography of International Debt Flows

Galina Hale, Maurice Obstfeld

NBER Working Paper No. 20033
Issued in April 2014
NBER Program(s):   IFM

Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.

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Document Object Identifier (DOI): 10.3386/w20033

Forthcoming: The Euro and the Geography of International Debt Flows, Galina Hale, Maurice Obstfeld. in Sovereign Debt and Financial Crisis, Kalemli-Ozcan, Reinhart, and Rogoff. 2014

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