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Debt stabilization and macroeconomic volatility in monetary unions under heterogeneous sovereign risk perceptions

Listed author(s):
  • Proaño, Christian R.
  • Lojak, Benjamin
Registered author(s):

    This paper studies the dynamics of sovereign risk, fiscal policy and the macroeconomy in a two-country monetary union framework under the assumption of a heterogeneous perception of the determinants of sovereign risk by the government and the market participants. The macroeconomic volatility resulting from various types of fiscal policy rules aimed at the stabilization of sovereign debt are investigated through numerical simulations. Among other things, these simulations show that an extreme focus on debt stabilization can be counterproductive if the financial markets care more about the country's output gap.

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    File URL: https://www.econstor.eu/bitstream/10419/125455/1/844416320.pdf
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    Paper provided by Bamberg University, Bamberg Economic Research Group in its series BERG Working Paper Series with number 106.

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    Date of creation: 2015
    Handle: RePEc:zbw:bamber:106
    Contact details of provider: Postal:
    D-96045 Bamberg

    Phone: 0951/8632687
    Fax: 0951/8632550
    Web page: http://www.uni-bamberg.de/vwl/forschung/berg/

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