This paper assesses the impact of Eurobonds on sovereign debt dynamics for selected European member states (Greece, Ireland and Portugal). For each member state, we produce sovereign debt fan charts of (i) a baseline scenario (no Eurobonds) and (ii) a Full-Fledged Eurobond introduction. The key...

The paper aims to provide a deep rationale for Banking Union in the euro area. It shows that the banking sectors of core and peripheral countries were responsible for financing the credit boom that created the imbalances and vulnerabilities that later were at the centre of the crisis. The...

This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest...

We analyze why the Eurozone crisis increasingly resembles Latin America’s lost decade instead of Asia’s phoenix miracle, emphasizing the roles of the real exchange rate, the external environment, and debt restructuring. In addition, we contrast the adjustment to housing bubbles in Ireland,...

This paper argues that the crisis was an outcome of EMU: setting a common monetary policy for countries with different initial inflation rates. The crisis countries were those with high inflation rates which then had negative real interest rates and consequently over-borrowed. Current policy...

There are some striking similarities between the pre 1914 gold standard and EMU today. Both arrangements are based on fixed exchange rates, monetary and fiscal orthodoxy. Each regime gave easy access by financially underdeveloped peripheral countries to capital from the core countries. But the...

In this paper I study the relation between real wage rigidity (RWR) and nominal price and wage rigidity. I show that in a standard DSGE model RWR is mainly affected by the interaction of the two nominal rigidities and not by other structural parameters. The degree of RWR is, however,...

There are numerous political economy approaches to the question of delayed stabilizations. However, all these approaches regard inflation as the unintentional result of the behavior of interest groups. In this paper we take the opposite view, namely, that when there is polarization of financial...

We show that US consumer inflation expectations are formed using a variant of adaptive expectations proposed by Mankiw et al. (2004). In particular, expectations behave differently when food and energy prices rise sharply relative to other prices. Using the recently proposed test of Homm and...

This paper studies a two-sector New Keynesian model that captures the hump-shaped response of non-durable and durable spending to a monetary shock when non-durable prices are sticky and durable goods are flexibly priced. Based on the estimated parameters, we show that habit formation and...