Inflation, Debt, and Default in a Monetary Union

Samir Jahjah

No 2000/179, IMF Working Papers from International Monetary Fund

Abstract: Depending on the preferences of the central bank, countries in a monetary union tend to accumulate less debt. This reduces the need for fiscal criteria such as debt ceilings. In a monetary union with an independent central bank and a sufficiently large number of relatively small members, investors will begin rationing credit to the government more rapidly, and an equilibrium with no inflation and no default exists. However, highly-indebted countries are more likely to default once they join a monetary union.

Keywords: WP; monetary policy; Public debt; inflation; monetary union; default; government default; budget constraint; regime switch; loss function; government set; government credit; Price stabilization; Monetary unions; Bonds; Debt service (search for similar items in EconPapers)
Pages: 30
Date: 2000-11-01
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Citations: View citations in EconPapers (2)

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