Exit expectations and debt crises in currency unions / Alexander Kriwoluzky; Gernot J. Müller; Martin Wolf
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Exit expectations and debt crises in currency unions
Discovery
840212682
URN
urn:nbn:de:gbv:3:2-49939
DOI
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Publication history
Halle (Saale) : Leibniz-Inst. für Wirtschaftsforschung - IWH, 2015
Content
Online-Ressource (PDF-Datei: III, 53 S., 1,83 MB) : graph. Darst.
Edition
Language
eng
Comment
Abstract
Membership in a currency union is not irreversible. Exit expectations may emerge during sovereign debt crises, because exit allows countries to reduce their liabilities through a currency redenomination. As market participants anticipate this possibility, sovereign debt crises intensify. We establish this formally within a small open economy model of changing policy regimes. The model permits explosive dynamics of debt and sovereign yields inside currency unions and allows us to distinguish between exit expectations and those of an outright default. By estimating the model on Greek data, we quantify the contribution of exit expectations to the crisis dynamics during 2009 to 2012.
Series
IWH-Diskussionspapiere ; 2015,18 ppn:837399270