Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads
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Summary:
We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.
Series:
Working Paper No. 2021/196
Subject:
Asset and liability management Asset prices Debt limits Fiscal policy Fiscal rules Prices
Frequency:
regular
English
Publication Date:
July 23, 2021
ISBN/ISSN:
9781513584645/1018-5941
Stock No:
WPIEA2021196
Pages:
16
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