Monetary policy can ease sovereign risk, says IMF paper

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Rising sovereign risk drives up private-sector borrowing costs, unless higher risk premiums are offset by looser monetary policy, according to an International Monetary Fund paper published on January 26.

Giancarlo Corsetti, Keith Kuester, Andre Meier and Gernot Mueller, the paper's authors, analyse the impact of strained government finances on macroeconomic stability and the transmission of fiscal policy. The authors identify a sovereign risk channel through which sovereign default risk raises

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