Exit expectations and debt crises in currency unions

• 成果类型: Article
• 署名作者: Kriwoluzky, Alexander; Muller, Gernot J.; Wolf, Martin
• 署名单位: Free University of Berlin; Leibniz Association; DIW Berlin - Deutsches Institut fur Wirtschaftsforschung; Eberhard Karls University of Tubingen; Centre for Economic Policy Research - UK; University of Vienna
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2019.103253
• 发表日期: 2019
• 关键词: Currency union; EXIT; Sovereign debt crisis; fiscal policy; Redenomination risk; Euro crisis; Regime-switching model

摘要

We study a sovereign debt crisis in a small member state of a currency union. If the country exits the currency union, it may redenominate its liabilities and reduce the real value of debt through depreciation and inflation. We analyze formally how the anticipation of this possibility, exit expectations, impact the dynamics of the sovereign debt crisis. First, we show that public debt accumulates faster and sovereign yields increase more strongly because of redenomination risk. Second, we find that exit expectations induce public debt to be stagflationary. Last, we analyze Greek time-series data through the lens of our model and quantify the contribution of exit expectations to the Greek crisis. (C) 2019 Elsevier B.V. All rights reserved.