Cross-Border Banking Flows Spillovers in the Eurozone: Evidence from an Estimated DSGE Model

48 Pages Posted: 26 Sep 2015

See all articles by Jean‐Christophe Poutineau

Jean‐Christophe Poutineau

Université de Rennes 1

Gauthier Vermandel

Department of Economics, Paris-Dauphine

Date Written: July 16, 2014

Abstract

This paper seeks to evaluate quantitatively how interbank and corporate crossborder flows shape business cycles in a monetary union. Using Bayesian techniques, we estimate a two-country DSGE model that distinguishes between Eurozone core and peripheral countries and accounts for national heterogeneities and a set of real, nominal and financial frictions. We find evidence of the key role of this cross-border channel as an amplifying mechanism in the diffusion of asymmetric shocks. Our model also reveals that under banking globalization, most national variables and the central bank interest rate are less sensitive to financial shocks while investment and current account imbalances are more sensitive to financial shocks. Finally, a counterfactual analysis shows that cross-border lending has affected the transmission of the recent financial crisis between the two groups of countries.

Keywords: Banking Globalization; Monetary Policy; Financial Accelerator; Interbank Market; Eurozone; Cross-border lending

JEL Classification: E32; E44; E52; F36; F41

Suggested Citation

Poutineau, Jean-Christophe and Vermandel, Gauthier, Cross-Border Banking Flows Spillovers in the Eurozone: Evidence from an Estimated DSGE Model (July 16, 2014). Journal of Economic Dynamics and Control, Vol. 51, 2015. Available at SSRN: https://ssrn.com/abstract=2665578

Jean-Christophe Poutineau

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

Gauthier Vermandel (Contact Author)

Department of Economics, Paris-Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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