# 11-027/2 (2011-02-11)

Andreas Schabert, TU Dortmund University, and University of Amsterdam
Exchange rate peg, interest rate policy, equilibrium determination, sovereign default, public debt
JEL codes:
E52, E63, F31, F41

We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default.