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In a monetary union, national fiscal deficits are of limited help to counteract deep recessions; union-wide support is needed. A common euro-area budget (1) should provide a temporary but significant transfer of resources in case of large regional shocks, (2) would be an instrument to counteract...
Persistent link: https://www.econbiz.de/10009670789
The European Central Bank's monetary policy addresses the euro-area average inflation rate. By setting conditions for the area as a whole it should ensure symmetric price adjustment. Indeed, consumer price inflation rates provide little evidence of asymmetric adjustment during 2009-11. Only...
Persistent link: https://www.econbiz.de/10009538163
All Eurosystem credit operations, including the important open market operations, need to be based on adequate collateral. Liquidity is provided to banks against collateral at market prices subject to a haircut. The Eurosystem adapted its collateral framework during the crisis to accept...
Persistent link: https://www.econbiz.de/10010436552
With a unique data set summarizing the quality of rules-based fiscal governance in EU member states, we show that stronger fiscal rules in euro area members reduce sovereign risk premia, in particular in times of market stress. To do so, we develop a model of sovereign spreads that are...
Persistent link: https://www.econbiz.de/10010317343
Credit rating agencies (CRAs) have not consistently met the expectations placed on them by investors and policymakers. It is difficult, however, to improve the quality of ratings through regulatory initiatives. In the short term, changes to the CRAs' regulatory environment, in a context of high...
Persistent link: https://www.econbiz.de/10010293566
This Policy Contribution reviews the major challenges faced by the euro area, and discusses recent initiatives and the way forward. Some implications are drawn out for Latvia's euro accession, which is likely to be beneficial on balance. The euro area faces three major challenges: (1) high...
Persistent link: https://www.econbiz.de/10010293577
Irrespective of the euro crisis, a European banking union makes sense, including for non-euro area countries, because of the extent of European Union financial integration.The Single Supervisory Mechanism (SSM) is the first element of the banking union. From the point of view of non-euro...
Persistent link: https://www.econbiz.de/10010293581
The Bank of England, the Federal Reserve (Fed) and the European Central Bank (ECB) have responded to the crisis with exceptional initiatives resulting in a major increase in their balance sheets. After the ECB's end-2011 launch of three-year bank refinancing (LTRO), there has been speculation...
Persistent link: https://www.econbiz.de/10010293582
The European Central Bank's monetary policy addresses the euro-area average inflation rate. By setting conditions for the area as a whole it should ensure symmetric price adjustment. Indeed, consumer price inflation rates provide little evidence of asymmetric adjustment during 2009-11. Only...
Persistent link: https://www.econbiz.de/10010293589
In this paper we examine why monetary aggregates of euro area Member States have developed differently since the inception of the euro. We derive a money demand equation that incorporates housing wealth and collateral as well as substitution effects on real money holdings. Empirically, we show...
Persistent link: https://www.econbiz.de/10010300298