TY  - JOUR
AU  - Hale, Galina
AU  - Obstfeld, Maurice
TI  - The Euro and The Geography of International Debt Flows
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 20033
PY  - 2014
Y2  - April 2014
DO  - 10.3386/w20033
UR  - http://www.nber.org/papers/w20033
L1  - http://www.nber.org/papers/w20033.pdf
N1  - Author contact info:
Galina Hale
Department of Economics
University of California, Santa Cruz
Engineering 2, 1156 High Street
Santa Cruz, CA 95064
E-Mail: gbhale@ucsc.edu

Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
E-Mail: obstfeld@econ.berkeley.edu
M1  - published as Galina Hale, Maurice Obstfeld. "The Euro and the Geography of International Debt Flows," in Sebnem Kalemli-Ozcan, Carmen Reinhart, and Kenneth Rogoff, organizers, "Sovereign Debt and Financial Crises" Wiley, Journal of the European Economic Association 14(1) (2016)

AB  - Greater financial integration between core and peripheral 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 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.
ER  -