Exits and bailouts in a monetary union

Michal Kobielarz

No 674999, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: This paper analyzes country bailouts in a monetary union within a framework where sovereign default and exit from the union are two separate decisions. The lack of exit precedent creates uncertainty about the exit cost, which might prevent countries from exiting. The first exit can resolve the uncertainty, which is why the union might bail out a troubled country. As the bailout is meant to prevent an exit from the union, it does not exclude subsequent defaults. The model motivates the occurrence of large fiscal transfers within the Eurozone, and explains why they were insufficient to resolve the debt crisis.

Keywords: monetary union; bailouts; fiscal transfers; exit; sovereign debt (search for similar items in EconPapers)
Pages: 45
Date: 2021
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Note: paper number DPS 21.07
References: Add references at CitEc
Citations:

Published in FEB Research Report Department of Economics

Downloads: (external link)
https://lirias.kuleuven.be/retrieve/619817 Published version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:674999

Access Statistics for this paper

More papers in Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven
Bibliographic data for series maintained by library EBIB ().