Sovereign risk, interbank freezes, and aggregate fluctuations

Arbeitspapier

This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank intermediation that induces a credit crunch. Government borrowing under limited commitment is costly ex ante as bank funding conditions tighten when the quality of collateral drops. This lowers the penalty from an interbank freeze and feeds back into default risk. The arising amplification mechanism propagates aggregate shocks to the macro-economy. The model is calibrated using Spanish data and is capable of reproducing key business cycle statistics alongside stylized facts during the European sovereign debt crisis.

Angaben zum Objekt

• ISBN: 978-92-899-1653-0
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 1840

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; International Lending and Debt Problems ; National Debt; Debt Management; Sovereign Debt
• Thema: Bank-sovereign link ; Domestic debt ; Interbank market ; Non-Ricardian effects ; Occasionally binding constraint ; Secondary markets ; Sovereign default

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Engler, Philipp ; Grosse Steffen, Christoph
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2015

Weitere Informationen

• Handle: http://hdl.handle.net/10419/154273
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ