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No doubt the monetary measures taken by the Government of the Federal Republic on May 10 have caused quite a stir. The question is: Can the European economic and monetary union still be achieved, in spite of the German measures?

In the aftermath of the global financial crisis, sovereign default risk and the zero lower bound have limited the ability of policy-makers in the European monetary union to achieve their stabilization objective. This paper investigates the interaction between sovereign default risk and the conduct of monetary policy, when borrowers can act strategically and they share with their lenders a single currency in a monetary union. We address this question in an endogenous sovereign default model of heterogeneous countries in a monetary union, where the monetary authority may be constrained by the zero lower bound. We uncover three main results. First, in normal times, debtors have a stronger incentive to default to induce more expansionary monetary policy. Second, the zero lower bound, or constraints on monetary policy may act as a disciplining device to enforce repayment of sovereign debt. Third, sovereign default risk induces countries with a preference for tight monetary policy to accept a laxer policy stance. These results help to shed light on the recent European experience of high default risk, expansionary monetary policy and low nominal interest rates. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

Diese Dissertation beschäftigt sich mit drei Problemen von Staatsschulden, die während der jüngsten Finanz- und Wirtschaftskrise in der Eurozone aufgetreten sind. Sie untersucht zunächst die Frage ob die Zinssätze auf Staatsanleihen in einer Währungsunion von ökonomischen Fundamentaldaten oder von Marktstimmungen bestimmt werden. Zu diesem Zweck werden Techniken von Ereignisstudien verwendet um die Reaktion von langfristigen Zinssätzen auf unterschiedliche Kategorien von Neuigkeiten über Änderungen in Fundamentaldaten zu analysieren. Sie kommt zu dem Schluss, dass man zwar eine signifikante Reaktion auf manche solcher Neuigkeiten feststellen kann, dass es aber keine feste Beziehung zwischen Änderungen in den Fundamentaldaten und Zinsen gibt, die über alle Länder hinweg stabil ist. Der zweite Teil der Dissertation behandelt die Frage wie die Nachhaltigkeit von Staatsfinanzen empirisch beurteilt werden kann. Darin wird ein empirisches Modell von Staatsschulden entwickelt und geschätzt, das in der Lage ist die Wahrscheinlichkeitsverteilung der Schulden-BIP-Quote zu jedem zukünftigen Zeitpunkt darzustellen. Für den Anwendungsfall Österreich deuten Vorhersagen auf Basis dieses Modells darauf hin, dass der Anstieg in der Schulden-BIP-Quote, der während der Eurokrise zu beobachten war, eher als transitorisches Randereignis und nicht als Hinweis auf ein langfristiges Nachhaltigkeitsproblem gesehen werden sollte. Die dritte Frage betrifft die Übertragung des Risikos eines Staatsschuldenausfalls auf den Rest der Volkswirtschaft. Um diese Frage zu untersuchen stellt die Dissertation ein Konjunkturmodell vor, in dem der Finanzsektor Staatsanleihen als Sicherheiten hält. In diesem Modell kann ein Anstieg der Ausfallwahrscheinlichkeit sowohl zu einer Kreditklemme als auch zu einer fallenden Güterproduktion führen. Wenn man das Modell zu Daten der Eurozone kalibriert, kann es einige wichtige stilisierte Fakten der Eurokrise erklären. ; This dissertation deals with three issues of public debt that emerged during the recent financial and economic crisis in the Eurozone. It first investigates the question whether the interest rates on government bonds in a monetary union are determined by economic fundamentals or market sentiments. For this purpose it uses event study techniques to analyze the reaction of long-term government interest rates to different categories of news about changes in fundamentals. It concludes that there is a significant reaction to some such events, but that there is no tight empirical link between changes in fundamentals and interest rates that is stable across countries. The second part of the dissertation addresses the question how the sustainability of government finances can be assessed empirically. It develops and estimates an empirical model of government debt that is able to characterize the probability distribution of the debt-GDP ratio at any future date. For the case of Austria, debt projections based on this model indicate that the increase in the debtGDP ratio that occurred in the aftermath of the Eurozone crisis should be seen as a transitory tail event rather than a sign of long-run unsustainability. The third issue concerns the transmission of government default risk to the rest of economy. The dissertation studies this issue by building a business cycle model with a financial sector that holds government bonds as collateral. In this model, an increase in the probability of default can lead both to a credit crunch and a decline in output. It shows that, when calibrated to Eurozone data, the model is able to explain some key stylized facts of the Eurozone crisis. ; Maximilian Gödl ; Zusammenfassung in deutscher und in englischer Sprache ; Karl-Franzens-Universität Graz, Dissertation, 2017 ; OeBB ; (VLID)2004028

Inflation differentials in Europe have narrowed substantially since the inception of the European Monetary System in 1979. However, their persistence after more than a decade raises the question of why these differentials are so difficult to eliminate. Some European Community countries systematically use seignorage—financing government expenditures with money creation—while others do not. This increases the difficulty of achieving the convergence of monetary policies and inflation rates required for irrevocably fixed exchange rates in Europe. This paper, utilizing a model of government finance that minimizes the social cost of financing government expenditures, examines monetary finance in the European Community. It rejects soundly the social cost minimization model of seignorage collection.

Results from cointegration and error-correction models for testing the effects of currency substitution in Greece, Portugal and Spain, in light of their upcoming participation in the European Monetary Union, revealed no significant short- or long-run currency substitution behavior in any country, suggesting that joining the union now would offer them no real benefits, unless significant economic convergence is achieved.