The macroeconomic effects of the sovereign debt crisis in the euro area
Stefano Neri () and
Tiziano Ropele ()
No 1007, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
This paper uses a Factor Augmented Vector Autoregressive model to assess the macroeconomic impact of the euro-area sovereign debt crisis and the effectiveness of the European Central Bank's conventional monetary policy. First, our results show that in the countries most affected by the crisis, the tensions in sovereign debt markets made credit conditions significantly worse and weighed on economic activity and unemployment. The disruptive effects of the sovereign tensions propagated to the core economies of the euro area through the trade and confidence channels. Second, "modest" (in the sense of Leeper and Zha, 2003) counterfactual simulations suggest that the accommodative monetary policy stance of the ECB helped to moderate the negative effects of the sovereign debt tensions.
Keywords: sovereign debt crisis; FAVAR models; Bayesian methods; monetary policy (search for similar items in EconPapers)
JEL-codes: C32 E44 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1007_15
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