Money, Fiscal Defecits and Government Debt in a Monetary Union

B. van Aarle, A.L. Bovenberg, M. Raith

Research output: Working paperDiscussion paperOther research output

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Abstract

The replacement of national currencies by a common currency in the EMU causes a monetary externality if the European Central Bank is inclined to monetize part of outstanding government debt in the community.High government debt in one part of the EU then increases the common inflation rate.We model debt stabilization in the EU as a differential game between fiscal authorities and the ECB.Three different equilibria are considered: the Nash open-loop equilibrium, the Stackelberg open-loop equilibrium with the ECB leading and the Stackelberg open-loop equilibrium with the fiscal authorities leading.Dynamics of the fiscal deficits, inflation and government debt in a monetary union are derived and compared with an EU with national monetary policies.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages36
Volume1996-34
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-34

Fingerprint

Fiscal
Government debt
Monetary union
Stackelberg
Authority
Open-loop Nash equilibrium
Currency
Inflation rate
Debt
Externalities
Differential games
Inflation
Monetary policy
Stabilization
Fiscal deficit
European Central Bank
Replacement
Common currency

Keywords

  • EMS
  • central banks
  • monetary policy
  • fiscal policy
  • game theory

Cite this

van Aarle, B., Bovenberg, A. L., & Raith, M. (1996). Money, Fiscal Defecits and Government Debt in a Monetary Union. (CentER Discussion Paper; Vol. 1996-34). Tilburg: Macroeconomics.
van Aarle, B. ; Bovenberg, A.L. ; Raith, M. / Money, Fiscal Defecits and Government Debt in a Monetary Union. Tilburg : Macroeconomics, 1996. (CentER Discussion Paper).
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van Aarle, B, Bovenberg, AL & Raith, M 1996 'Money, Fiscal Defecits and Government Debt in a Monetary Union' CentER Discussion Paper, vol. 1996-34, Macroeconomics, Tilburg.

Money, Fiscal Defecits and Government Debt in a Monetary Union. / van Aarle, B.; Bovenberg, A.L.; Raith, M.

Tilburg : Macroeconomics, 1996. (CentER Discussion Paper; Vol. 1996-34).

Research output: Working paperDiscussion paperOther research output

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KW - game theory

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van Aarle B, Bovenberg AL, Raith M. Money, Fiscal Defecits and Government Debt in a Monetary Union. Tilburg: Macroeconomics. 1996. (CentER Discussion Paper).