The dilemma facing policymakers is how to combine the instruments they have available in the form of fiscal, monetary and exchange rate policy to achieve the targets of internal and external balance. Shortly before the global economic and financial crisis in 2008 most economies appeared to be...

A fundamental cause of the global financial crisis was excessive maturity mismatch, notably shadow banking holdings of sub-prime MBS and other structured credit instruments and cross-border Euro area interbank lending to the uncompetitive Euro area periphery. The costs of short term funding do...