Events at CERGE-EI

Michal Kobielarz, Ph.D.

KU Leuven, Belgium

https://cuni-cz.zoom.us/j/94013261796?pwd=VXFMM1pkOEUzVXYvMC93c1I3ZG9PQT09

Meeting ID: 940 1326 1796

Passcode: 319933

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Abstract: This paper analyzes country bailouts in a monetary union within a framework where sovereign default and exit from the union are two separate decisions. The lack of exit precedent creates uncertainty about the exit cost, which might prevent countries from exiting. The first exit can resolve the uncertainty, which is why the union might bail out a troubled country. As the bailout is meant to prevent an exit from the union, it does not exclude subsequent defaults. The model motivates the occurrence of large fiscal transfers within the Eurozone, and explains why they were insufficient to resolve the debt crisis.

Key words: monetary union, bailouts, scal transfers, exit, sovereign debt.
JEL Classication Numbers: F33, F34, F36, F41.

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Full Text: Exits and Bailouts in a Monetary Union