TY  - JOUR
AU  - Cooper,Russell
AU  - Kempf,Hubert
AU  - Peled,Dan
TI  - Is it is or is it Ain't my Obligation? Regional Debt in Monetary Unions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10239
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10239
L1  - http://www.nber.org/papers/w10239.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
European University Institute
via della Piazzola, 43
Firenze, 50133
ITALY
E-Mail: russellcoop@gmail.com

Hubert Kempf
Ecole Normale Superieure, Cachan,
and Paris School of Economics
E-Mail: kempf@univ-paris1.fr

Dan Peled
Department of Economics
University of Haifa
Haifa 31905, ISRAEL
E-Mail: dpeled@econ.haifa.ac.il
AB  - This paper studies the implications of the circulation of interest bearing regional debt in a monetary union. Does the circulation of this debt have the same monetary implications as the printing of money by a central government? Or are the obligations of this debt simply backed by future taxation with no inflationary consequences? We argue here that both outcomes can arise in equilibrium. In the model economy we consider there are multiple equilibria which reflect the perceptions of agents regarding the manner in which the debt obligations will be met. In one equilibrium, termed Ricardian, the future obligations are met with taxation by a regional government while in the other, termed Monetization, the central bank is induced to print money to finance the region's obligations. The multiplicity of equilibria reflects a commitment problem of the central bank. A key indicator of the selected equilibrium is the distribution of the holdings of the regional debt. We use the model to assess the impact of policy measures, such as fiscal restrictions, within a monetary union.
ER  -