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We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign...
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We examine the evolution of international currency exposures, with a particular focus on the 2002-12 period. During the run up to the global financial crisis, there was a widespread shift towards positive net foreign currency positions, such that relatively few countries exhibited the archetypal...
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the world. In this paper, we show that a small set of fundamentals--shifts in relative output levels, the stock of public …
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We examine the cross-country dispersion in fiscal outcomes during 2007-2009. In principle, international differences in fiscal policy may be related to differences in optimal fiscal positions, funding constraints, political economy factors and fiscal control problems. We find that the decline in...
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imbalances across the world. Since the onset of the crisis, these imbalances have contracted to a significant extent. In this …
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