Banks, Sovereign Risk and Unconventional Monetary Policies

Stéphane Auray, Aurélien Eyquem and Mairesse Xiaofei ()
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Mairesse Xiaofei: ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)

No 2017-60, Working Papers from Center for Research in Economics and Statistics

Abstract: We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Both features interact and give rise to a debt-banks-credit loop by which sovereign default risk can have large contractionary effects on the economy. Calibrated to the Euro Area, the model performs well in matching key business cycle facts on real, ?nancial and ?scal time series. We then use the model to assess the effects of the Great Recession and quantify the potential effects of alternative unconventional policies on the dynamics of European economies. All the policies considered can bring sizable reductions in the welfare losses from the Great Recession, but policies targeted at sovereign bonds and interbank loans are more efficient than standard credit interventions.

Keywords: recession; interbank market; sovereign default risk; monetary policy (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 F34 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-06-18
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Banks, sovereign risk and unconventional monetary policies (2018)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2018)
Working Paper: Banks, sovereign risk and unconventional monetary policies (2018)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2018)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2016)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2016)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2015)
Working Paper: Banks, Sovereign Risk and Unconventional Monetary Policies (2014)
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