Inflation, Debt, and Default in a Monetary Union

30 Pages Posted: 3 Feb 2006

See all articles by Samir Jahjah

Samir Jahjah

International Monetary Fund - INS

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

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.

Keywords: Public debt monetary policy inflation monetary union default

JEL Classification: E43 E52 E58 F33 G15 H60 H63

Suggested Citation

Jahjah, Samir, Inflation, Debt, and Default in a Monetary Union (November 2000). IMF Working Paper No. 00/179, Available at SSRN: https://ssrn.com/abstract=880245

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International Monetary Fund - INS ( email )

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