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Sovereign risk and belief-driven fluctuations in the Euro area

"<span style="font-size: 9pt; font-family: Verdana, sans-serif; color: #505050; background-position: initial initial; background-repeat: initial initial;" lang="EN-GB">Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credi...

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Bibliographic Details
Main Authors: Corsetti, Giancarlo, Kuester, Keith, Meier, André, Mueller, Gernot J.
Institution:ETUI-European Trade Union Institute
Format: TEXT
Language:English
Published: Washington, DC 2013
IMF
Subjects:
economic model
fiscal policy
monetary policy
public debt
EU countries
Online Access:https://www.labourline.org/KENTIKA-19122475124919406579-Sovereign-risk-and-belief-driv.htm
Description
Summary:"<span style="font-size: 9pt; font-family: Verdana, sans-serif; color: #505050; background-position: initial initial; background-repeat: initial initial;" lang="EN-GB">Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this &ldquo;sovereign risk channel.&rdquo; The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises."</span>
Physical Description:48 p.
Digital

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