Pensions, Debt and Inflation Risk in a Monetary Union

Arbeitspapier

This paper investigates the international spillovers of government debt and the associated risk of inflation within a monetary union when countries have different pension systems. I use a stochastic two-country two-period overlapping-generations model, where one country has PAYG pensions and the other country has funded pensions. The paper shows that the PAYG country can shift part of its long-term debt burden to the funded country. Moreover, the PAYG country gains from unexpected inflation at the cost of the funded country. In response to these conflicting interests about inflation, inflation risk may rise with the level of debt in the PAYG country. Higher inflation risk harms both countries. Actually, in contrast to the debt burden, the PAYG country cannot share the negative effects of a rise in inflation risk with the funded country. The scenarios analysed might be especially relevant for the years to come.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 10-109/2

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Open Economy Macroeconomics ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Social Security and Public Pensions ; National Debt; Debt Management; Sovereign Debt
• Subject: spillovers ; pensions ; debt ; inflation ; Haushaltsdefizit ; Spillover-Effekt ; Inflation ; Währungsunion ; Overlapping Generations ; Zwei-Länder-Modell ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Adema, Yvonne
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/87060
• Last update: 10.03.2025, 11:41 AM CET