Central bank credit has expanded dramatically since the beginning of 2007 in some of the euro area member countries. This paper makes two contributions to understand this stylized fact. First, we discuss a simple model of monetary policy that includes (i) a credit channel and (ii) a common pool...

The recent increase of interest rate spreads in Europe and their apparent detachment from underlying fundamental variables has generated a debate on multiple equilibria in the sovereign bond market (see Grauwe and Ji (2012)). We critically evaluate this hypothesis, by pointing towards an...

In this paper, we investigate whether foreign currency accounts help overcome credit constraints in developing countries. We analyze a novel bank-level data set from Nepal, where a steady inflow of remittances has contributed to foreign currency deposits on commercial bank balance sheets. In...

We study China's illicit capital flow and document a change in its pattern. Specifically, we observe that China's capital flight, especially the one measured by trade misinvoicing, exhibits a weakened response in the post-2007 period to the covered interest disparity, which is a theoretical...

Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result...

The Single Supervisory Mechanism was introduced to eliminate the common-pool problem and limit uncontrolled lending by national central banks (NCBs). We analyze its effectiveness. Second, we model how, by forbearing and providing refinancing credit, NCBs avoid domestic resolution costs and,...

In the winter 2011/12 a wave of internal capital .ight prompted the ECB to abandon its exit strategy and to announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) by providing an event-study analysis covering key variables from national central...

During Europe's sovereign-debt crisis, interest rate spreads have been highly correlated with the share of multilateral loans that were considered senior to private markets. As both variables are potentially endogenous, we follow two different approaches to analyze the direction of causality....

Since the beginning of the financial crisis in 2007/8, new lending in the Euro-Area has slowed sharply and the old loans experienced "evergreening," i.e. bad loans have been rolled over rather than being liquidated. Even though ameliorating evergreening is key to promote lending for new...

We use two measures to study two capital flight channels for Germany. One measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the Eurosystem of central banks. For both measures, we propose refinements to enhance the assessment of capital flight. We find...