Real Exchange Rate and Public Debt in a Two-Advanced-Country OLG Model

Karl Farmer and Matthias Schelnast ()
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Matthias Schelnast: University of Graz

Chapter 14 in Growth and International Trade, 2013, pp 301-331 from Springer

Abstract: Abstract The recent euro crisis has caused concerns both with respect to public-debt sustainability and the stability of exchange rates of highly indebted countries. This chapter investigates these concerns in a two-good, two-country OLG model of the world economy with country-specific saving rates to mimic also Asian economies. We find that the concerns with respect to debt-sustainability are warranted since limits for national debt levels do exist. The concerns regarding exchange-rate stability are not warranted since unilateral debt expansion does not impact the real exchange rate at all or the impacts are independent of the external balance of the debt-expanding country.

Keywords: Real Exchange Rate; Public Debt; Saving Rate; Debt Level; Young Household (search for similar items in EconPapers)
Date: 2013
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Chapter: Real Exchange Rate and Public Debt in a Two-Advanced-Country OLG Model (2021)
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DOI: 10.1007/978-3-642-33669-0_14

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