Indebtedness and macroeconomic imbalances in a monetary-union DSGE model

Cristina Badarau, Florence Huart and Ibrahima Sangaré ()
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Ibrahima Sangaré: Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux

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Abstract: We build a two-country open-economy monetary union DSGE model in order to explain some macroeconomic imbalances in the euro area. We fo cus on the role of cyclic al behaviour of public spending and sovereign risk premium. Pro-cyclical primary public expenditures in one country do not lead to higher interest rates on domestic public bonds in the short term as long as output growth helps financing public debt. Spillover effects on th e other country can be positive on output as long as a real effective depreciation of the common currency leads to higher exports to the rest of the world.

Keywords: macroeconomic divergences; euro area; DSGE; risk premium; pro-cyclical fiscal policy; spillover effects (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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