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Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops

Emmanuel Farhi () and Jean Tirole

Review of Economic Studies, 2018, vol. 85, issue 3, 1781-1823

Abstract: The recent unravelling of the Eurozone’s financial integration raised concerns about feedback loops between sovereign and banking insolvency. This article 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.

Keywords: Feedback loop; Bailouts; Sovereign default; Banking unions (search for similar items in EconPapers)
JEL-codes: F34 F36 F65 G28 H63 (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: Deadly Embrace - Sovereign and Financial Balance Sheets Doom Loops (2017) Downloads
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2016) Downloads
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2016) Downloads
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2015) Downloads
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