 Government guarantees and the two-way feedback between banking and sovereign debt crisesJournal of Financial Economics, 2018, vol. 130, issue 3, 592-619 Abstract: This paper studies the effects of government guarantees on the interconnection between banking and sovereign debt crises in a framework where both the banks and the government are fragile and the credibility and feasibility of the guarantees are determined endogenously. The analysis delivers some new results on the role of guarantees in the bank-sovereign nexus. First, guarantees emerge as a key channel linking banks’ and sovereign stability, even in the absence of banks’ holdings of sovereign bonds. Second, depending on the specific characteristics of the economy and the nature of banking crises, an increase in the size of guarantees can be beneficial for the bank-sovereign nexus in that it enhances financial stability without undermining sovereign solvency. Keywords: Bank runs; Sovereign default; Strategic complementarity; Government bond yield (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:jfinec:v:130:y:2018:i:3:p:592-619 DOI: 10.1016/j.jfineco.2018.04.003 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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