Banks, Sovereign Debt, and the International Transmission of Business Cycles
Chapter in NBER book NBER International Seminar on Macroeconomics 2012 (2013), Francesco Giavazzi and Kenneth D. West, organizers (p. 181 - 213)
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.This chapter is no longer available for free download, since the book has been published. To obtain a copy, you must buy the book.
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Document Object Identifier (DOI): 10.1086/669586This 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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