Steven Ongena, Alexander Popov, Neeltje van Horen, 17 March 2016

The European sovereign debt crisis has triggered speculation that part of the increase in banks’ holdings of domestic sovereign debt was driven by ‘moral suasion’ by governments. This column shows that domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of sovereign bonds in those months when the government had to issue a large amount of new debt. This suggests that governments indeed ‘morally sway’ their banks to purchase domestically issued sovereign bonds when sovereign bond markets are stressed.

Vox Talks

CEPR Policy Research