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

Olli Palmen

doi:10.1016/j.jimonfin.2020.102257

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

Research output: Contribution to journal › Article › Scientific › peer-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 language	English
Article number	102257
Journal	Journal of International Money and Finance
Volume	109
Number of pages	19
ISSN	0261-5606
DOIs	https://doi.org/10.1016/j.jimonfin.2020.102257
Publication status	Published - Dec 2020
MoE publication type	A1 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

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10.1016/j.jimonfin.2020.102257Licence: CC BY

1-s2.0-S0261560620302138-mainFinal published version, 1.82 MBLicence: CC BY

1 Finished

Structural Analysis of Non-Gaussian Macroeconomic and Financial Time Series
Lanne, M., Saikkonen, P., Meitz, M., Luoto, J., Funovits, B. & Palmén, O.
01/09/2017 → 31/08/2021
Project: Research project

Cite this

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title = "Sovereign Default Risk and Credit Supply: Evidence from the Euro Area",

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.",

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author = "Olli Palmen",

year = "2020",

month = dec,

doi = "10.1016/j.jimonfin.2020.102257",

language = "English",

volume = "109",

journal = "Journal of International Money and Finance",

issn = "0261-5606",

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T1 - Sovereign Default Risk and Credit Supply

T2 - Evidence from the Euro Area

AU - Palmen, Olli

PY - 2020/12

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N2 - 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.

AB - 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.

KW - 512 Business and Management

KW - econ.GN

KW - q-fin.EC

KW - Credit supply

KW - DEBT CRISIS

KW - MONETARY-POLICY

KW - RESTRICTIONS

KW - SHOCKS

KW - SIGN

KW - SPREADS

KW - STRUCTURAL VECTOR AUTOREGRESSIONS

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KW - Structural vector autoregression

KW - 511 Economics

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M3 - Article

VL - 109

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

SN - 0261-5606

M1 - 102257

ER -

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

Abstract

Fields of Science

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Projects

Structural Analysis of Non-Gaussian Macroeconomic and Financial Time Series

Cite this