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Monetary Independence and Rollover Crises.
- Source :
- Working Papers Series (Federal Reserve Bank of Minneapolis); Dec2018, preceding p1-45, 46p
- Publication Year :
- 2018
-
Abstract
- This paper shows that the inability to use monetary policy for macroeconomic stabilization leaves a government more vulnerable to a rollover crisis. We study a sovereign default model with selfful fulfilling rollover crises, foreign currency debt, and nominal rigidities. When the government lacks monetary autonomy, lenders anticipate that the government will face a severe recession in the event of a liquidity crisis, and are therefore more prone to run on government bonds. By contrast, a government with monetary autonomy can stabilize the economy and can easily remain immune to a rollover crisis. In a quantitative application, we find that the lack of monetary autonomy played a central role in making the Eurozone vulnerable to a rollover crisis. A lender of last resort can help ease the costs from giving up monetary independence. [ABSTRACT FROM AUTHOR]
- Subjects :
- MONETARY policy
ROLLOVERS (Finance)
FINANCIAL crises
EXTERNAL debts
MACROECONOMICS
Subjects
Details
- Language :
- English
- Database :
- Complementary Index
- Journal :
- Working Papers Series (Federal Reserve Bank of Minneapolis)
- Publication Type :
- Report
- Accession number :
- 135859268
- Full Text :
- https://doi.org/10.21034/wp.755