Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87060
Authors: 
Adema, Yvonne
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-109/2
Abstract: 
This paper investigates the international spillovers of government debt and the associated risk of inflation within a monetary union when countries have different pension systems. I use a stochastic two-country two-period overlapping-generations model, where one country has PAYG pensions and the other country has funded pensions. The paper shows that the PAYG country can shift part of its long-term debt burden to the funded country. Moreover, the PAYG country gains from unexpected inflation at the cost of the funded country. In response to these conflicting interests about inflation, inflation risk may rise with the level of debt in the PAYG country. Higher inflation risk harms both countries. Actually, in contrast to the debt burden, the PAYG country cannot share the negative effects of a rise in inflation risk with the funded country. The scenarios analysed might be especially relevant for the years to come.
Subjects: 
spillovers
pensions
debt
inflation
JEL: 
E31
F41
G11
G12
H55
H63
Document Type: 
Working Paper

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