Structural asymmetries and financial imbalances in the eurozone
Ivan Jaccard () and
No 2076, Working Paper Series from European Central Bank
Almost two decades after the introduction of the common currency diﬀerences in institutional frameworks remain a major source of cross-country heterogeneity in the eurozone. We develop a two-country model with incomplete international markets in which the availability of credit depends on the country’s institutional environment. Our main ﬁnding is that structural diﬀerences in domestic credit environments provide an explanation for the procyclicality of net capital inﬂows observed in the South of Europe. We show that frictions in domestic credit markets generate asymmetries in the transmission mechanism of shocks that are common to both regions. JEL Classification: F32, F20, G17
Keywords: cross-border financial markets; eurozone crisis; incomplete international asset markets; structural reforms (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172076
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