We evaluate the effects of permanently reducing labour tax rates in the euro area (EA) by simulating a large-scale open economy dynamic general equilibrium model. The model features the EA as a monetary union, split in two regions (Home and the rest of the EA - REA), the US, and the rest of the...

We assess the yield impact of asset purchases within the ECB's Securities Markets Programme in five euro area sovereign bond markets during 2010-11. Identification is non-trivial and based on time series panel data regression on predetermined purchases and control covariates. In addition to...

This paper shows that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy. When the central bank enjoys only limited credibility a pegged exchange rate regime yields a...

This paper endeavours to provide a comprehensive analysis of the nature and the possible importance of “global excess liquidity”, a concept which has attracted considerable attention in recent years. The contribution of this paper is threefold. First, we present some conceptual discussion on...

A growing number of papers have studied positive and normative implications of financial frictions in DSGE models. We contribute to this literature by studying the welfare-based monetary policy in a two-country model characterized by financial frictions, alongside a number of key features, like...

A key insight from the open economy literature is that domestic price stability is in general not optimal for countries that exert some market power over their terms of trade. Under commitment, a national benevolent monetary policymaker improves upon the allocation associated with stable...

We show that the composition of imports has important implications for the optimal volatility of the exchange rate. Using input-output data for 25 countries we document substantial differences in the import and non-tradable content of final demand components, and in the role played by imported...

We examine the open-economy implications of the introduction of a central bank digital currency (CBDC).We add a CBDC to the menu of monetary assets available in a standard two-country DSGE model with financial frictions and consider a broad set of alternative technical features in CBDC design....

This paper studies the effects and the transmission mechanism of unexpected monetary policy shocks in an open economy setting within the context of a VAR frame-work. It considers an economy with two sectors, a tradable sector and a non-tradable sector. For a given country, economic sectors are...

This paper investigates the role of three likely factors in driving the steady deterioration of the US external balance: US technology developments, changes in the US government fiscal position and the Fed's monetary policy. Estimating several Vector Autoregressions on US data over the period...