Gita Gopinath is a Professor of Economics at Harvard University. Her research focuses on International Finance and Macroeconomics. She is a visiting scholar at the Federal Reserve Bank of Boston, a Managing Editor of the Review of Economic Studies, and a research associate with the National Bureau of Economic Research (NBER) for the programs in Economic Fluctuations and Growth, International Finance and Macroeconomics, and Monetary Economics. She also served as a member of the Eminent Persons Advisory Group on G-20 Matters for India's Ministry of Finance. In 2011, she was chosen as a Young Global Leader by the World Economic Forum. Before coming to Harvard, she was an assistant professor of economics at the University of Chicago's Graduate School of Business. She holds a B.A. from the University of Delhi (1992), an M.A. from the Delhi School of Economics (1994) and from the University of Washington (1996), and a Ph.D from Princeton University (2001).


Abstract
We study scal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country scal authorities lack commitment to repay their debt and choose scal policy independently. A common monetary authority chooses in ation for the union, also without commitment. We first describe the existence of a scal externality that arises in the presence of limited commitment and leads countries to over borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fullling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low in ation. These ndings shed new light on the criteria for an optimal currency area in the presence of rollover crises.