In Which Cases Can the Stability Pact be Useful?
We build a simple theoretical model, representing two countries participating in a monetary union, to analysis the cases in which it is efficient to limit public sector deficits (to implement the Stability Pact). We introduce a link between the levels of public debt and the common interest rate, hence an external effect on deficits, from one country to the other. The divergences between the countries come either from asymmetrical shocks or from differences between the desired levels of public spending.
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|Date of creation:||1998|
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