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Households saving and financial spillovers in the Euro area

Cristina Badarau, Florence Huart () and I. Sangaré

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Abstract: The aim of this paper is to study the consequences of a preference shock resulting in an increase in household savings in one country of a monetary union such as the Euro area. We study the macroeconomic effects of such a shock by developing a dynamic stochastic general equilibrium model which describes a two-country monetary union open to the rest of the world. A key feature of the model deals with one specific dimension of financial integration, namely cross-border bank holdings of government bonds. We show that a negative preference shock in one country can have salient spillover effects on the rest of the union. Spillovers come not only from the financial markets opening-up, but also from the intensity of intra-union trade, and the response of macroeconomic (monetary and fiscal) policies. © 2021 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd

Date: 2021
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Published in Bulletin of Economic Research, 2021, ⟨10.1111/boer.12275⟩

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DOI: 10.1111/boer.12275

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