Bianchi, JavierMondragon, Jorge2022-02-142022-02-142022-02-142022-02-0110.1093/qje/qjab025https://infoscience.epfl.ch/handle/20.500.14299/185321WOS:000743312400009This article 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 to the Eurozone debt crisis, we find that the lack of monetary autonomy played a central role in making Spain vulnerable to a rollover crisis. Finally, we argue that a lender of last resort can go a long way toward reducing the costs of giving up monetary independence.EconomicsBusiness & Economicsfulfilling debt crisessovereign defaultpolicymaturitymodeltext::journal::journal article::research article