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Conference Proceedings (1997), International Business in the New Millennium, vol. III, Texas A&M International University Press, pp. 645-659

The Risk of Default on Public Debts in a Monetary Union : The Case for a European Compensation Fund

SOUVETON R., VRANCEANU Radu

This paper aims at analyzing the role played by the default risk on Treasury bonds in a monetary union. We focus on the interactions between the risk-adjusted interest rate and several main macroeconomic variables like income, public debt and government spending. By considering theoretical arguments and a supporting simulation, we show that a rational expectations equilibrium might exist, in which a positive price for risk and bond interest rates are jointly determined.

SOUVETON, R. and VRANCEANU, R. (1997). The Risk of Default on Public Debts in a Monetary Union : The Case for a European Compensation Fund. In: International Business in the New Millennium, vol. III. Texas A&M International University Press, pp. 645-659.