The `Excessive Deficit Procedure' of the Maastricht Treaty on Economic and Monetary Union proposes two fiscal convergence conditions for entry and continued membership in the EMU: 1) a country's overall budget deficit for each fiscal year must be equal to or below 3% of GDP, and 2) a country's...

Infrequent but turbulent overt sovereign defaults on domestic creditors are a "forgotten history" in Macroeconomics. We propose a heterogeneous-agents model in which the government chooses optimal debt and default on domestic and foreign creditors by balancing distributional incentives v. the...

This paper studies household financial choices in four euro area countries. The goal of the analysis is to understand the sources of the differences in these choices and their implications for the impact of monetary policy on consumption. The estimation of key parameters uses a simulated method...

Despite a formal 'no-bailout clause', we estimate significant net present value transfers from the European Union to Cyprus, Greece, Ireland, Portugal and Spain, ranging from roughly 0.5% (Ireland) to 43% (Greece) of 2011 output during the recent Eurozone crisis. We propose a model to analyze...

We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy by ameliorating the under-investment problem of the financial sector. However, increasing taxation of the non-financial sector to fund the bailout may be inefficient since it...

How will sovereign debt markets evolve in the 21st century? We survey how the literature has responded to the Eurozone debt crisis, placing "lessons learned" in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies; (ii) a bank-sovereign "doom-loop"...

Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of...