Effects of debt mutualization in a monetary union with endogenous risk premia: Can Eurobonds contribute to debt stabilization?

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

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)100-114
JournalStructural Change and Economic Dynamics
Volume44
DOIs
Publication statusPublished - Mar 2018

Keywords

  • Eurobonds
  • sovereign debt sustainability
  • sovereign debt crisis
  • Euro area

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