While currency crises are typically considered to be painful and costly events, a closer look reveals that economic developments after a speculative attack differ considerably. Monetary authorities can play a central role in determining the economic course and costs of currency crises. They have...

The European Stability Mechanism (ESM) is the permanent crisis resolution mechanism for euro area countries. We analyze the costs of the current (suboptimal) refinancing design of the ESM and evaluate an alternative asset-backed securities (ABS) structure under different scenarios. Our...

European Union (EU) accession countries have strong incentives to stabilize their exchange rates with respect to the euro as the nominal anchor. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize the de facto exchange rate...

Regaining exchange rate stability has been a major monetary policy goal of East Asian countries in the aftermath of the 1997/98 currency crisis. While most countries have abstained from re-establishing a formal US Dollar peg, they have typically managed the US Dollar exchange rate de facto. We...

The microeconomic structure of foreign exchange markets can cause excessive volatility in flexible exchange rate regimes. The market entry of chartists changes the composition of the foreign exchange market and leads to excessive volatility. Our chartist model predicts a continuum of equilibria...

Stabilizing the exchange rate is a major monetary policy goal in a number of Mediterranean countries. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize de facto exchange rate regimes and to derive a market based measure of...

This paper develops a market-based approach to implement so called Eurobonds, i.e. common sovereign debt securities of European Monetary Union (EMU) countries. By applying an asset-backed security (ABS) approach positive implications of a common bond can be achieved and negative incentives (e.g....

Despite major recent advance in the literature on financial crises, the key role of central banks in the dynamics of financial crises are still not well understood. Our aim is to contribute to a better understanding of the dynamics of financial crises by explicitly modeling the strategic options...