The 2009 European Report on Development analyses the costs and characteristics of fragility (Section 1), the capacity of fragile countries to cope with negative shocks such as the 2008-09 financial crisis (Section 2), and the EU’s current engagement with fragile countries as well as the...

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when...