Member countries of the European Monetary Union (EMU) initiated wideranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union....

The aim of this paper is to assess the impact of the interbank market on the business cycle fluctuations. In order to do that, we build a DSGE model with heterogeneous households and banks. The surplus bank can allocate its resources between interbank lending and risk free government bonds. This...