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On the International Spillover Effects of Country-Specific Financial Sector Bailouts and Sovereign Risk Shocks

Matthew Greenwood-Nimmo, Viet Hoang Nguyen () and Eliza Wu
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Viet Hoang Nguyen: Melbourne Institute: Applied Economic & Social Research, The University of Melbourne, https://findanexpert.unimelb.edu.au/profile/361260-viet-nguyen

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: We use sign-identified macroeconomic models to study the interaction of financial sector and sovereign credit risks in Europe. We find that country-specific financial sector bailout shocks do not generate strong international spillovers, because they primarily transfer private sector risk onto the local sovereign. By contrast, sovereign risk shocks generate substantial spillovers onto the global financial sector and for international sovereign debt markets. We conclude that any financial sector bailout policy that undermines the creditworthiness of the affected sovereign is likely to exacerbate global credit risk. Our findings highlight the unintended global consequences of country-specific financial sector bailout programmes.

Keywords: Financial sector bailouts; sovereign risk shocks; international spillovers; structural shocks; sign restrictions (search for similar items in EconPapers)
JEL-codes: C58 E61 F42 (search for similar items in EconPapers)
Pages: 41pp
Date: 2020-11
New Economics Papers: this item is included in nep-fdg, nep-ifn, nep-mac and nep-opm
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Journal Article: On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks* (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2020n22

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