Sovereign default risk and credit supply: Evidence from the euro area

Olli Palmén

Journal of International Money and Finance, 2020, vol. 109, issue C

Abstract: Did sovereign default risk affect macroeconomic activity through firms’ access to credit during the European sovereign debt crisis? We investigate this question by a estimating a structural panel vector autoregressive model for Italy, Spain, Portugal, and Ireland, where the sovereign risk shock is identified using sign restrictions. The results suggest that the decline in the creditworthiness of the sovereign contributed to a fall in private lending and economic activity in several euro-area countries by reducing the value of banks’ assets and crowding out private lending.

Keywords: Sovereign debt crisis; Credit supply; Structural vector autoregression (search for similar items in EconPapers)
JEL-codes: E43 E44 E51 F44 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:109:y:2020:i:c:s0261560620302138

DOI: 10.1016/j.jimonfin.2020.102257

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