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

312 Downloads (Pure)

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

Keywords

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

Fingerprint Dive into the research topics of 'Money, Fiscal Defecits and Government Debt in a Monetary Union'. Together they form a unique fingerprint.

  • 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). Macroeconomics.