The Euro and the Geography of International Debt Flows

Galina Hale and Maurice Obstfeld

Journal of the European Economic Association, 2016, vol. 14, issue 1, 115-144

Abstract: Greater financial integration between core and peripheral European Monetary Union (EMU) members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, core EMU countries increased their borrowing from outside of the EMU and their lending to the EMU periphery. Moreover, we present evidence that large core EMU banks’ lending to periphery borrowers was linked to their borrowing from outside of the euro area.

JEL-codes: F32 F34 F36 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (70)

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Related works:
Journal Article: THE EURO AND THE GEOGRAPHY OF INTERNATIONAL DEBT FLOWS (2016)
Working Paper: The Euro and the Geography of International Debt Flows (2014)
Working Paper: The Euro and the Geography of International Debt Flows (2014)
Working Paper: The Euro and The Geography of International Debt Flows (2014)
Chapter: The Euro and the Geography of International Debt Flows (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:14:y:2016:i:1:p:115-144.

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