Citation

Discussion Paper Details

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Title: Does Monetary Unification Lead to Excessive Debt Accumulation?

Author(s): Roel Beetsma and A Lans Bovenberg

Publication Date: November 1995

Keyword(s): Common Central Bank, Credibility Effect, Government Myopia, Monetary Union, Optimal Debt Target and Price Stability Weight

Programme Area(s): International Macroeconomics

Abstract: If discretionary monetary policy implies an inflation bias, monetary unification boosts the accumulation of public debt. The additional debt accumulation is welfare reducing only if governments are sufficiently myopic. In the presence of myopic governments, debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allow a conservative, independent central bank to focus on price stability.

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Bibliographic Reference

Beetsma, R and Bovenberg, A. 1995. 'Does Monetary Unification Lead to Excessive Debt Accumulation?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1299