Journal article
Interbank markets and bank bailout policies amid a sovereign debt crisis
Journal of economic dynamics & control, v 93, pp 131-153
Aug 2018
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Interbank markets have been at the core of the international transmission of recent financial crises, including the euro area sovereign debt crisis. This paper studies the transmission of shocks in a two-country DSGE model where government bonds are used as collateral in interbank markets. We isolate an “interbank collateral channel” of transmission, which works through banks portfolio allocation between loans and government bonds, the resulting value of banks bond holdings and the tightness of collateral constraints in the interbank market. We find that, while in some scenarios this channel compounds a “bank net worth channel” in amplifying negative shocks, in other scenarios the “interbank collateral channel” can mitigate the effects of shocks. Bank bailout policies financed by government debt can erode this stabilizing effect.
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Details
- Title
- Interbank markets and bank bailout policies amid a sovereign debt crisis
- Creators
- Aeimit Lakdawala - Michigan State UniversityRaoul Minetti - Michigan State UniversityMaría Pía Olivero - Drexel University
- Publication Details
- Journal of economic dynamics & control, v 93, pp 131-153
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000442061600009
- Scopus ID
- 2-s2.0-85042137503
- Other Identifier
- 991019170851804721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics