Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops

Emmanuel Farhi and Jean Tirole

No 21843, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The recent unravelling of the Eurozone's financial integration raised concerns about feedback loops between sovereign and banking insolvency. This paper provides a theory of the feedback loop that allows for both domestic bailouts of the banking system and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.

JEL-codes: E0 F34 F36 F65 G28 H63 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-opm
Note: EFG IFM ME PE
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Citations: View citations in EconPapers (59)

Published as Emmanuel Farhi & Jean Tirole, 2018. "Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops," The Review of Economic Studies, vol 85(3), pages 1781-1823.

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Related works:
Journal Article: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2018)
Working Paper: Deadly embrace: sovereign and financial balance sheets doom loops (2018)
Working Paper: Deadly Embrace - Sovereign and Financial Balance Sheets Doom Loops (2017)
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2016)
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2015)
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