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Does Monetary Unification Lead to Excessive Debt Accumulation?

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

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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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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  18. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
  19. Cukierman, Alex, 1994. "Central Bank Independence and Monetary Control," Economic Journal, Royal Economic Society, vol. 104(427), pages 1437-48, November.
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