Description

We study gains from introducing a common numerical fiscal rule in a "Union" of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.

More publications in this series: Working Papers

More publications by: Juan Carlos Hatchondo ; Leonardo Martinez ; Francisco Roch