Bianchi, Javier. <br/><br/>
Monetary Independence and Rollover Crises / 
Javier Bianchi, Jorge Mondragon. 
 - Cambridge, Mass.  National Bureau of Economic Research  2018. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w25340 .
 - Working Paper Series (National Bureau of Economic Research)  no. w25340. .
<br/><br/> December 2018. 
<br/><br/> This paper shows that the inability to use monetary policy for macroeconomic stabilization leaves a government more vulnerable to a rollover crisis. We study a sovereign default model with self-fulfilling rollover crises, foreign currency debt, and nominal rigidities. When the government lacks monetary independence, lenders anticipate that the government would face a severe recession in the event of a liquidity crisis, and are therefore more prone to run on government bonds. In a quantitative application, we find that the lack of monetary autonomy played a central role in making Spain vulnerable to a rollover crisis during 2011-2012. Finally, we argue that a lender of last resort can go a long way towards reducing the costs of giving up monetary independence. 
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