Skip to main content
eScholarship
Open Access Publications from the University of California

UC Santa Cruz

UC Santa Cruz Previously Published Works bannerUC Santa Cruz

The Euro and the Geography of International Debt Flows

  • Author(s): Hale, Galina;
  • Obstfeld, Maurice
  • et al.

Published Web Location

https://www.dropbox.com/s/7f0r6w4ub7pewkq/JEEA_Accepted.pdf?dl=0
No data is associated with this publication.
Abstract

Greater financial integration between core and peripheral European Monetary Union (EMU) members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, core EMU countries increased their borrowing from outside of the EMU and their lending to the EMU periphery. Moreover, we present evidence that large core EMU banks’ lending to periphery borrowers was linked to their borrowing from outside of the euro area.

Many UC-authored scholarly publications are freely available on this site because of the UC's open access policies. Let us know how this access is important for you.

Item not freely available? Link broken?
Report a problem accessing this item