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Inflation, Debt, and Default in a Monetary Union

Author

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  • Mr. Samir Jahjah

Abstract

Depending on the preferences of the central bank, countries in a monetary union tend to accumulate less debt. This reduces the need for fiscal criteria such as debt ceilings. In a monetary union with an independent central bank and a sufficiently large number of relatively small members, investors will begin rationing credit to the government more rapidly, and an equilibrium with no inflation and no default exists. However, highly-indebted countries are more likely to default once they join a monetary union.

Suggested Citation

  • Mr. Samir Jahjah, 2000. "Inflation, Debt, and Default in a Monetary Union," IMF Working Papers 2000/179, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/179
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    Cited by:

    1. Jäger, Jannik & Grigoriadis, Theocharis, 2016. "Soft budget constraints, European Central Banking and the financial crisis," Discussion Papers 2016/7, Free University Berlin, School of Business & Economics.
    2. Francesco Menoncin & Marco Tronzano, 2005. "Is a Monetary Union a Never-Ending Story?," Revue économique, Presses de Sciences-Po, vol. 56(1), pages 25-49.

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