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Debt Stabilization and Debt Mutualization in a Monetary Union with Endogenous Risk Premia

Author

Listed:
  • Jacob Engwerda
  • Bas van Aarle
  • Arie Weeren
  • Bas Van Aarle

Abstract

In this paper we analyse debt stabilization in a monetary union that features endogenous risk premia. In particular, we analyse debt stabilization in two diametrically opposed regimes. 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 mone-tary union. We compare outcomes in both regimes using simulations of a number of relevant scenarios.

Suggested Citation

  • Jacob Engwerda & Bas van Aarle & Arie Weeren & Bas Van Aarle, 2015. "Debt Stabilization and Debt Mutualization in a Monetary Union with Endogenous Risk Premia," CESifo Working Paper Series 5564, CESifo.
    • Handle: RePEc:ces:ceswps:_5564
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    References listed on IDEAS

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    Cited by:

    1. Enrico Saltari & Willi Semmler & Giovanni Di Bartolomeo, 2022. "A Nash Equilibrium for Differential Games with Moving-Horizon Strategies," Computational Economics, Springer;Society for Computational Economics, vol. 60(3), pages 1041-1054, October.
    2. Giovanni Di Bartolomeo & Marco Di Pietro & Enrico Saltari & Willi Semmler, 2018. "Public debt stabilization: the relevance of policymakers’ time horizons," Public Choice, Springer, vol. 177(3), pages 287-299, December.

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    More about this item

    Keywords

    Eurobonds; sovereign debt sustainability; sovereign debt crisis;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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