Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model

Jean-Christophe Poutineau () and Gauthier Vermandel

Journal of Economic Dynamics and Control, 2015, vol. 51, issue C, 378-403

Abstract: This paper seeks to evaluate quantitatively how interbank and corporate cross-border flows shape business cycles in a monetary union. Using Bayesian techniques, we estimate a two-country DSGE model that distinguishes between Eurozone core and peripheral countries and accounts for national heterogeneities and a set of real, nominal and financial frictions. We find evidence of the key role of this cross-border channel as an amplifying mechanism in the diffusion of asymmetric shocks. Our model also reveals that under banking globalization, most national variables and the central bank interest rate are less sensitive to financial shocks while investment and current account imbalances are more sensitive to financial shocks. Finally, a counterfactual analysis shows that cross-border lending has affected the transmission of the recent financial crisis between the two groups of countries.

Keywords: Banking globalization; Monetary policy; Financial accelerator; Interbank market; Eurozone (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 F36 F41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:51:y:2015:i:c:p:378-403

DOI: 10.1016/j.jedc.2014.11.006

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