01812cas a2200277 a 4500 AALejournalIMF013976 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475513448 1018-5941 BD-DhAAL BD-DhAAL Corsetti, Giancarlo. Sovereign Risk and Belief-Driven Fluctuations in the Euro Area / Giancarlo Corsetti, Keith Kuester, Andre Meier, Gernot Mueller. Washington, D.C. : International Monetary Fund, 2013. 1 online resource (49 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this 'sovereign risk channel.' The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises. Mode of access: Internet Kuester, Keith. Meier, Andre. Mueller, Gernot. IMF Working Papers; Working Paper ; No. 2013/227 Full text available on IMF http://elibrary.imf.org/view/journals/001/2013/227/001.2013.issue-227-en.xml IMF e-Library