Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193537
Authors: 
Grant, Everett
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 30
Abstract: 
I identify new patterns in countries' economic performance over the 2007-2014 period based on proximity through distance, trade, and finance to the US subprime mortgage and Eurozone debt crisis areas. To understand the causes of the cross-country variation, I develop an open economy model with two transmission channels that can be shocked separately: international trade and finance. The model is the first to include a government and heterogeneous firms that can default independently of one another and has a novel endogenous cost of sovereign default. I calibrate the model to the average experiences of countries near to and far from the crisis areas. Using these calibrations, disturbances on the order of those observed during the late 2000s are separately applied to each channel to study transmission. The results suggest credit disruption as the primary contagion driver, rather than the trade channel. Given the substantial degree of financial contagion, I run a series of counterfactuals studying the efficacy of capital controls and find that they would be a useful tool for preventing similarly severe contagion in the future, so long as there is not capital immobility to the degree that the local sovereign can default without suffering capital flight.
Subjects: 
Economic crises
contagion
endogenous costs of default
sovereign default
banking crisis
Great Recession
Eurozone debt crisis
JEL: 
E32
F40
F41
F44
H63
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-60-4
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.