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Does Monetary Unification Lead to Excessive Debt Accumulation?

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  • Beetsma, R.M.W.J.
  • Bovenberg, A.L.

Abstract

If discretionary monetary policy implies an inflation bias, monetary unification boosts the accumulation of public debt. The additional debt accumulation is welfare reducing only if governments are sufficiently myopic. In the presence of myopic governments, debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allow a conservative, independent central bank to focus on price stability.

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Bibliographic Info

Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 95-23.

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Length: 25 pages
Date of creation: 1995
Date of revision:
Publication status: Published in Journal of Public Economics, 1999, vol. 74, pp. 299-325
Handle: RePEc:del:abcdef:95-23

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Keywords: MONETARY UNION; DEBT; PRICES;

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