Deadly embrace: sovereign and financial balance sheets doom loops

Emmanuel Farhi and Jean Tirole

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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)
Date: 2018-07
Note: View the original document on HAL open archive server: https://hal.science/hal-03270310v1
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Citations: View citations in EconPapers (120)

Published in Review of Economic Studies, 2018, 85 (3), pp.1781-1823. ⟨10.1093/restud/rdx059⟩

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Related works:
Journal Article: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2018)
Working Paper: Deadly Embrace - Sovereign and Financial Balance Sheets Doom Loops (2017)
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2016)
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2016)
Working Paper: Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03270310

DOI: 10.1093/restud/rdx059

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