Banks, Sovereign Debt and the International Transmission of Business Cycles

Luca Guerrieri, Matteo Iacoviello and Raoul Minetti

No 18303, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector.

JEL-codes: F4 G21 H63 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-opm
Note: IFM
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Citations: View citations in EconPapers (50)

Published as Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2013. "Banks, Sovereign Debt, and the International Transmission of Business Cycles," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 181 - 213.
Published as Banks, Sovereign Debt, and the International Transmission of Business Cycles , Luca Guerrieri, Matteo Iacoviello, Raoul Minetti. in NBER International Seminar on Macroeconomics 2012 , Giavazzi and West. 2013

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Journal Article: Banks, Sovereign Debt, and the International Transmission of Business Cycles (2013)
Chapter: Banks, Sovereign Debt, and the International Transmission of Business Cycles (2012)
Working Paper: Banks, sovereign debt and the international transmission of business cycles (2012)
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