Sovereign debt crises hit non-tradable sectors harder
A 1% increase in bond spreads associated with average decline of 3% in growth of zero-traded industries
Sovereign debt crises cause disproportionately more economic damage to non-tradable sectors, a paper published by the Federal Reserve Bank of Minneapolis finds.
Default Risk, Sectoral Reallocation, and Persistent Recessions, by Cristina Arellano, Yan Bai and Gabriel Mihalache documents this pattern using Spanish data during the eurozone sovereign debt crisis of 2010–2013.
“We find that the output decline from the peak of 2007 to the trough of 2013 is larger for sectors that are less traded,”
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