Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/156213
Authors: 
Spahn, Peter
Year of Publication: 
2016
Series/Report no.: 
ROME Discussion Paper Series 16-10
Abstract: 
Without a Lender of Last Resort for government debt, multiple equilibria in bond markets may ensue where default emerges for non-fundamental reasons. The stabilising power of central bank interventions does not build on a real debt depreciation via inflation, but on a swap of bonds and central bank reserves that bear lower interest rates. Budget constraints and balance sheet considerations do not necessarily pose severe restrictions for such a monetary backstop policy. However in EMU, the ECB is not authorised for supporting national fiscal policy. But a return to a no-bailout regime requires large debt cuts.
Subjects: 
currency union
lender of last resort
central bank reserves
central bank budget constraint
JEL: 
E5
E6
Document Type: 
Working Paper

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