Most EU member states adopt national fiscal rules that refer to cyclically adjusted borrowing limits. Yet, trend increases in public debt caused by the cyclical components are only prevented if the real-time output gaps used to calculate cyclical components balance over time. We analyze...

This paper investigates the differences between real-time and ex-post output gap estimates using a newly-constructed international real-time dataset over the period from 1973:Q1 to 2012:Q3. We extend the findings in Orphanides and van Norden (2002) for the United States that the use of ex-post...

This paper evaluates out-of-sample exchange rate forecasting with Purchasing Power Parity (PPP) and Taylor rule fundamentals for 9 OECD countries vis-à-vis the U.S. dollar over the period from 1973:Q1 to 2009:Q1 at short and long horizons. In contrast with previous work, which reports...

Tiny changes in the American monetary policy can have dramatic effects on the rest of the world because of dollar's double role of national and international currency. This is the Triffin dilemma. The paper shows how it works through three examples: price of commodities, dollarization, and the...

The paper analyses the empirical relationship between bank risk and sovereign credit risk in the euro area. Using structural VAR with daily financial markets data for 2003-13, the analysis confirms two-way causality between shocks to sovereign risk and bank risk, with the former being overall...

Rules-based monetary policy evaluation has long been central to macroeconomics. Using the original Taylor rule, a modified Taylor rule with a higher output gap coefficient, and an estimated Taylor rule, we define rules-based and discretionary eras by smaller and larger policy rule deviations,...

Leith and Wren-Lewis (2007) have shown that government debt is returned to its pre-shock level in a New Keynesian model under optimal discretionary policy. This has two important implications for monetary and fiscal policy. First, in a high-debt economy, it may be optimal for discretionary...

Since the crisis of 2001, an impressive package of fiscal consolidation and institutional reform has created a strong foundation for economic growth. As a result, GDP growth has been strong and stable, inflation has fallen, and the public debt burden has been significantly reduced. Yet the...

Since the crisis of 2001, an impressive package of fiscal consolidation and institutional reform has created a strong foundation for economic growth. As a result, GDP growth has been strong and stable, inflation has fallen, and the public debt burden has been significantly reduced. Yet the...

The European Central Bank is unique in setting monetary policy for several sovereign states with heterogeneous debt levels and different maturity structures. The monetary-fiscal nexus is central to the functioning of the euro area. We focus on one particular aspect of that nexus, the effect the...