Euro zone sovereign crisis spillover to real sector: Is banking sector liquidity a major conduit ?

Mercredi | 2014-12-17
salle B103, 12h-14h

Hadi KHALIL – Syed Muhammad Noaman Ahmed SHAH

In this paper, we try to analyze the spillover effects of sovereign debt crisis in Euro-area on non-financial corporate sector through banks liquidity creation transmission channel. The existing empirical literature mainly treats the sovereign-bank or bank-corporate nexus while gauging the spillover effects of vulnerability in the said sectors. The current study is an attempt to fill the gap and provides a novel approach to view the government, bank and corporate nexus as continuous structural system which is empirically impassable to truncate in order to effectively analyze its true effect and potential relationship. In addition, the present work contributes to explain in detail how such contagion transmits and the evidence regarding its related causality.