Abstract
We investigate the propagation of contagion through banks’ balance sheets in a two-country model. We simulate an increase in non-performing loans in one bank, and study the effects on other banks and the macro economy of each country. We show that credit crunches destabilize each economy in the short run and in the long run reduce potential output. We quantify this loss.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have