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Central bank intervention, public debt and interest rate target zones

Pompeo Della Posta

Journal of Macroeconomics, 2018, vol. 56, issue C, 311-323

Abstract: The euro area crisis has been characterized by speculative attacks reflecting the market fear that some high indebted countries could go bankrupt. What is puzzling, however, is that non-euro area countries with an equally large – and in some cases even larger – public debt-to-GDP ratios have not been subject to attacks. This fact, together with the convex non-linear behavior exhibited by interest rates have been explained by observing that euro area countries could not rely on a lender of last resort, and this made possible the occurrence of self-fulfilling speculative attacks.

Keywords: Interest rates target zones; Central bank intervention; Public debt; Foreign debt; Exchange rates target zones; Speculative attacks (search for similar items in EconPapers)
JEL-codes: E65 F34 F36 (search for similar items in EconPapers)
Date: 2018
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