Debt Stabilization and Debt Mutualization in a Monetary Union with Endogenous Risk Premia

Jacob Engwerda, Bas van Aarle, Arie Weeren and Bas Van Aarle
Authors registered in the RePEc Author Service: Bas van Aarle

No 5564, CESifo Working Paper Series from CESifo

Abstract: In this paper we analyse debt stabilization in a monetary union that features endogenous risk premia. In particular, we analyse debt stabilization in two diametrically opposed regimes. In the first regime, the “national fiscal discipline regime”, financial markets impose sovereign risk premia based on each country’s government debt level. In the second regime, the “eurobonds Regime”, financial markets impose a risk premium based on the average debt level in the mone-tary union. We compare outcomes in both regimes using simulations of a number of relevant scenarios.

Keywords: Eurobonds; sovereign debt sustainability; sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: C32 H63 H68 H81 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5564

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