Interdependence of Fiscal Debts in EMU
Maria Demertzis and
Nicola Viegi ()
DNB Working Papers from Netherlands Central Bank, Research Department
We use an overlapping generations model to show that a bail-out is the optimal response to a fiscal crisis when the level of integration in a Monetary Union is high and the departure from Ricardian equivalence is significant. As it may not be optimal expost, the no bail-out rule is not credible ex-ante. To make it credible, one would have to look for arrangements that make the cost of one country defaulting sufficiently small, such that it does not impose a risk to the viability of the whole Monetary Union. One way to do that that we exploit is by reducing the relative size of the individual fiscal authority (from national to regional, for example).
Keywords: Debt Default; Monetary Union; Bail-Out (search for similar items in EconPapers)
JEL-codes: E62 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:309
Access Statistics for this paper
More papers in DNB Working Papers from Netherlands Central Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Richard Heuver ().