Inflation, Debt, and Default in a Monetary Union

Author/Editor:

Samir Jahjah

Publication Date:

November 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 00/179

Subject:

English

Publication Date:

November 1, 2000

ISBN/ISSN:

9781451859027/1018-5941

Stock No:

WPIEA1792000

Format:

Paper

Pages:

30

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