Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis. Report as inadecuate




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Abstract

In this paper, we propose a simple post-Keynesian model on the linkages between the financial andreal side of an economy. We show how, according to the Minskyan instability hypothesis, financialvariables, credit availability and asset prices in particular, may feedback each other and affecteconomic activity, possibly giving rise to intrinsically unstable economic processes. Through thesedestabilizing mechanisms, we also explain why governments intervention in the aftermath of the2007 financial meltdown has been largely useless to restore financial tranquility and economicgrowth, but transformed a private debt crisis into a sovereign debt one. The paper ends up bylooking at the long-run and to the interaction between long-term growth potential and public debtsustainability. We explicitly consider the Euro-zone economic context and the difficulties severalEU members currently face to simultaneously support economic recovery and consolidate fiscalimbalances. We stress that: i financial turbulences may trigger permanent reductions in long-termgrowth potential and unsustainable public debt dynamics; ii strong institutional discontinuitysuch as Eurobond issuances may prove to be the only way to restore growth and ensure long-runpublic debt sustainability.



Item Type: MPRA Paper -

Original Title: Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis.-

English Title: Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis.-

Language: English-

Keywords: post-Keynesian models, financial instability, debt sustainability, Eurobonds-

Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-KeynesianE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the MacroeconomyH - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt-





Author: alberto, botta

Source: https://mpra.ub.uni-muenchen.de/33860/







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