Banks, Sovereign Risk and Unconventional Monetary Policies

GATE Working Paper 1830, December 2018

32 Pages Posted: 20 Dec 2018

See all articles by Stéphane Auray

Stéphane Auray

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI)

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Xiaofei Ma

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: June 2018

Abstract

We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Calibrated to the core and the periphery of the Euro Area, the model gives rise to a debt-banks-credit loop that substantially amplifies the effects of financial shocks, especially for the periphery. We use the model to investigate the effects of a stylized public asset purchase program at the steady state and during a crisis. We find that it is more effective in stimulating the economy during a crisis, in particular for the periphery.

Keywords: Recession, Interbank Market, Sovereign Default Risk, Asset Purchases

JEL Classification: E32, E44, E58, F34

Suggested Citation

Auray, Stéphane and Eyquem, Aurélien and Ma, Xiaofei, Banks, Sovereign Risk and Unconventional Monetary Policies (June 2018). GATE Working Paper 1830, December 2018 . Available at SSRN: https://ssrn.com/abstract=3295057

Stéphane Auray (Contact Author)

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI) ( email )

Rennes Métropole - Campus de Ker Lann
Rue Blaise Pascal
BP 37203- 35172 BRUZ Cedex
France

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Xiaofei Ma

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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