TY - JOUR
T1 - Effects of debt mutualization in a monetary union with endogenous risk premia
T2 - Can Eurobonds contribute to debt stabilization?
AU - van Aarle, B.
AU - Engwerda, Jacob
AU - Weeren, A.J.T.M.
PY - 2018/3
Y1 - 2018/3
N2 - This paper analyses debt stabilization in a monetary union that features endogenous risk premia. In particular, debt stabilization in two diametrically opposed regimes is compared. 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. Outcomes in both regimes are compared using simulations of a number of relevant scenarios.
AB - This paper analyses debt stabilization in a monetary union that features endogenous risk premia. In particular, debt stabilization in two diametrically opposed regimes is compared. 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. Outcomes in both regimes are compared using simulations of a number of relevant scenarios.
KW - Eurobonds
KW - sovereign debt sustainability
KW - sovereign debt crisis
KW - Euro area
U2 - 10.1016/j.strueco.2017.11.004
DO - 10.1016/j.strueco.2017.11.004
M3 - Article
SN - 0954-349X
VL - 44
SP - 100
EP - 114
JO - Structural Change and Economic Dynamics
JF - Structural Change and Economic Dynamics
ER -