Sovereign Default Risk and Credit Supply: Evidence from the Euro Area

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Did sovereign default risk affect macroeconomic activity through firms' access to credit during the European sovereign debt crisis? We investigate this question by a estimating a structural panel vector autoregressive model for Italy, Spain, Portugal, and Ireland, where the sovereign risk shock is identified using sign restrictions. The results suggest that the decline in the creditworthiness of the sovereign contributed to a fall in private lending and economic activity in several euro-area countries by reducing the value of banks' assets and crowding out private lending. (C) 2020 The Author(s). Published by Elsevier Ltd.

Original languageEnglish
Article number102257
JournalJournal of International Money and Finance
Volume109
Number of pages19
ISSN0261-5606
DOIs
Publication statusPublished - Dec 2020
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 512 Business and Management
  • econ.GN
  • q-fin.EC
  • Credit supply
  • DEBT CRISIS
  • MONETARY-POLICY
  • RESTRICTIONS
  • SHOCKS
  • SIGN
  • SPREADS
  • STRUCTURAL VECTOR AUTOREGRESSIONS
  • Sovereign debt crisis
  • Structural vector autoregression
  • 511 Economics

Cite this