What are the causes of the shadow economy? We provide new answers to this old question. The sharp distinction between theoretical priors on the institutional determinants of the shadow economy and the technique used for its measurement is the first novel contribution of the paper. The second...

This paper investigates the response of the shadow economy to banking crises. Our empirical analysis, based on a large sample of countries, suggests that the informal sector is a powerful buffer, which expands at times of banking crises and absorbs a large proportion of the fall in official...

This paper derives a New Keynesian dynamic general equilibrium model with liquidity constrained consumers and sticky prices. The model allows a role for both government spending and taxation in the DGE model. The model is then estimated using Euro area data. We demonstrate that there seems to be...

In New Keynesian models nominal rigidities determine socially ineffi - cient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero in-...

The empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries \break their promises"? We show that a stable socio-political...

We reconsider the issues of fiscal policy interdependence in a monetary union, challenging the view that non co-ordination is always preferable. Moreover, we show that an expenditure bias occurs irrespective of the fiscal regime in place. We argue that a contractualist approach à la Walsh...

Building on widespread criticisms of current EMU institutional arrangements, we sketch a reform proposal for EMU macroeconomic institutions. We advocate the adoption of targets for both monetary and fiscal policies, to be integrated by a system of checks and balances. As for fiscal policy,...

In this paper we estimate a model where in°ation, a measure of de facto central bank independence and an index of de facto exchange rate regime are simultaneously determined by a set of economic, political and institutional variables. De facto central bank independence is hampered by...