Debt Stabilization and Debt Mutualization in a Monetary Union with Endogenous Risk Premia

Jacob Engwerda, B. van Aarle, A.J.T.M. Weeren

Research output: Working paperOther research output

Abstract

In this paper we analyse debt stabilization in a monetary union that features endogenous risk premia. In particular, we analyse debt stabilization in two diametrically opposed regimes. In the first regime, the “national fiscal discipline regime”, financial markets impose sovereign risk premia based on each country’s government debt level. In the second regime, the “eurobonds Regime”, financial markets impose a risk premium based on the average debt level in the monetary union. We compare outcomes in both regimes using simulations of a number of relevant scenarios.
Original languageEnglish
Place of PublicationMunich
PublisherCESifo Working Papers
Number of pages23
Volume5564
Publication statusPublished - Oct 2015

Publication series

NameCESifo Working Paper
Volume5564

Keywords

  • Eurobonds
  • sovereign debt sustainability
  • sovereign debt crisis

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