 Deposit insurance and financial integration in the Eurozone: A DSGE modelEconomics Letters, 2021, vol. 207, issue C Abstract: The financial and Eurozone debt crises highlighted the importance of deposit insurance coordination in the Eurozone. While the role of deposit insurance in protecting the economy from harmful runs is widely accepted, little is known about the international implications of deposit insurance, and in particular how it affects the cross-border transmission of shocks. This paper proposes a macroeconomic framework to evaluate different deposit insurance regimes in the Eurozone. I develop an international DSGE model with banks that are subject to endogenous and costly runs. The model sheds light on a new transmission channel: a weak deposit insurance in one country generates financial instability in that country, which in turn spills over to the rest of the union due to financial integration. The analysis shows that harmonizing deposit insurance in the Eurozone significantly improves financial stability and welfare both in the Core and Periphery regions. Keywords: DSGE model; International economics; Financial economics; Financial stability; Banking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:207:y:2021:i:c:s0165176521003098 DOI: 10.1016/j.econlet.2021.110032 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.