The structural model of sovereign credit risk introduced in an earlier paper by the authors is applied here to measure the impact of introducing Eurobonds. Tranching (i. e. splitting the public debt into a senior and a junior tranche) is coupled with a cross-guarantee among eurozone countries and with a cash transfer. We show that Eurobonds can reduce the overall cost of servicing the public debt for some (high debt) countries in the euro area without increasing the cost for other countries. Moreover, they are likely to give governments an incentive to curb their deficits, due to the higher marginal cost of debt.

Eurobonds: A Quantitative Approach

CHERUBINI, UMBERTO
2016

Abstract

The structural model of sovereign credit risk introduced in an earlier paper by the authors is applied here to measure the impact of introducing Eurobonds. Tranching (i. e. splitting the public debt into a senior and a junior tranche) is coupled with a cross-guarantee among eurozone countries and with a cash transfer. We show that Eurobonds can reduce the overall cost of servicing the public debt for some (high debt) countries in the euro area without increasing the cost for other countries. Moreover, they are likely to give governments an incentive to curb their deficits, due to the higher marginal cost of debt.
2016
Baglioni, Angelo; Cherubini, Umberto
File in questo prodotto:
Eventuali allegati, non sono esposti

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/600979
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 4
  • ???jsp.display-item.citation.isi??? 3
social impact