Findings from Federal Reserve Bank Broaden Understanding of Economics (International Spillovers and Bailouts): Economics

2024 NOV 04 (NewsRx) -- By a News Reporter-Staff News Editor at Economics Daily Report -- Investigators discuss new findings in Economics. According to news reporting out of Richmond, Virginia, by NewsRx editors, research stated, “We study how cross-country macroeconomic spillovers caused by sovereign default affect equilibrium bailouts.”

Our news journalists obtained a quote from the research from Federal Reserve Bank, “Because of portfolio diversification, the default of one country causes a macroeconomic contraction in other countries, which motivates a bailout. But why do creditor countries choose to bailout debtor countries instead of their own private sector? We show that this is because an external bailout could be cheaper than a domestic bailout.”

According to the news editors, the research concluded: “We also show that although anticipated bailouts lead to higher borrowing, they can be Pareto improving not only ex post (after a country has defaulted) but also ex ante (before the country chooses its debt).”

This research has been peer-reviewed.

For more information on this research see: International Spillovers and Bailouts. Review of Economic Studies, 2024;91(1):77-128. Review of Economic Studies can be contacted at: Oxford Univ Press, Great Clarendon St, Oxford OX2 6DP, England. (Oxford University Press - http://www.oup.com/; Review of Economic Studies - restud.oxfordjournals.org)

Our news journalists report that additional information may be obtained by contacting Marina Azzimonti, Federal Reserve Bank, Richmond, VA 23219, United States.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1093/restud/rdad025. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.