Premium
Debt Crises and Risk‐Sharing: The Role of Markets versus Sovereigns
Author(s) -
KalemliOzcan Sebnem,
Luttini Emiliano,
Sørensen Bent
Publication year - 2014
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12043
Subject(s) - austerity , economics , monetary economics , debt crisis , financial crisis , european debt crisis , debt , variance decomposition of forecast errors , international economics , government debt , credit risk , financial system , fiscal policy , economic policy , european union , macroeconomics , finance , european integration , politics , political science , law , econometrics
Using a variance decomposition of shocks to gross domestic product (GDP), we quantify the role of international factor income, international transfers, and saving in achieving risk‐sharing during the recent European crisis. We focus on the subperiods 1990–2007, 2008–2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk‐sharing from saving into contributions from government and private saving, and show that fiscal austerity programs played an important role in hindering risk‐sharing during the sovereign debt crisis.