Authors
Emmanuel Farhi, Jean Tirole
Publication date
2018/7/1
Journal
The Review of Economic Studies
Volume
85
Issue
3
Pages
1781-1823
Publisher
Oxford University Press
Description
The recent unravelling of the Eurozone’s financial integration raised concerns about feedback loops between sovereign and banking insolvency. This article provides a theory of the feedback loop that allows for both domestic bailouts of the banking system and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.
Scholar articles
E Farhi, J Tirole - The Review of Economic Studies, 2018