Monetary Policy and Debt Fragility ∗

  title={Monetary Policy and Debt Fragility ∗},
  author={Antoine Camous and Russell Cooper},
The valuation of government debt is subject to strategic uncertainty, stemming from investors’ sentiments. Pessimistic lenders, fearing default, bid down the price of debt. This leaves a government with a higher debt burden, increasing the likelihood of default and thus confirming the pessimism of lenders. This paper studies the interaction of monetary policy and debt fragility. It asks: do monetary interventions mitigate debt fragility? The answer depends in part on the nature of monetary… CONTINUE READING


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