Expectations and Sovereign Debt Crises Contagion Abstract

Seminario de investigación del IIEP

Expectations and Sovereign Debt Crises Contagion Abstract

Expositor | Diego Friedheim

Es Licenciado en Economía por la Universidad de Buenos Aires, tiene una maestría en Economía de la Universidad de San Andrés y actualmente se encuentra cursando un doctorado en Economía en la Universidad Bocconi. Antes de comenzar el doctorado, trabajó en el Banco Mundial, en el Ministerio de Producción argentino y en el Centro de Estudios de Estado y Sociedad (CEDES). Sus áreas de interés son macroeconomía y finanzas internacionales.

This paper investigates the role of expectation in propagating the European sovereign debt crisis within the Eurozone periphery. It documents that banks with less precise forecasts before the crisis reduced more their GDP forecasts for the Eurozone Periphery countries during the crisis. However, we do not observe significant differences across banks’ precision in forecasting Eurozone core countries’ GDPs during the same period. A potential rationalization for these findings is that less precise banks estimate a higher shock transmission within the Eurozone periphery countries; this work presents empirical evidence in favor of this hypothesis. Finally, this paper presents an endogenous sovereign default model to quantify the effect of having less precise lenders on countries’ default probabilities.