Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro...

The recent sharp increase in fiscal deficits and government debt in many countries raises questions regarding their impact on long-term sovereign bond yields. While economic theory suggests that this impact is likely to be adverse, empirical results have been less clear cut, have generally...

The German economy has made major strides, helped by wide-ranging reforms. Greater transparency and stronger incentives for prudent action will support crisis prevention and management. The immediate priorities are preserving the integrity of the financial system and maintaining economic...

Jamaica has performed well under the Stand-By Arrangement program. Executive Directors commended that overall macroeconomic performance under the program has been encouraging. Directors welcomed the program aimed at fiscal responsibility legislation and central treasury management, public debt...

The Slovak economy showed recovery from sharp recession. Executive Directors suggested that restoring fiscal sustainability and removing unemployment while maintaining external competitiveness within the monetary union should be given priority. The fiscal consolidation strategy could be...

This Selected Issues paper focuses on the issues of fiscal policy, rebalancing, and growth in New Zealand. The paper discusses that a key policy challenge for New Zealand is to rebalance the economy and reduce external vulnerabilities. It provides model-based estimates of the potential...

The staff report for the 2007 Article IV Consultation highlights the Slovak Republic’s macroeconomic outlook and policy discussions. The National Bank of Slovakia (NBS) has been following a hybrid monetary framework focused on restraining inflation and on maintaining the exchange rate...

Cape Verde’s economic and policy performance remains sound under the Poverty Reduction and Growth Facility (PRGF) arrangement supported by Policy Support Instrument (PSI). Executive Directors commended the prudent macroeconomic policies and structural reforms. They emphasized the need for...

Iraq showed good progress in undertaking strong macroeconomic policies and implementing economic reforms under the Stand-By Arrangement (SBA). Executive Directors welcomed this, and noted that low investment and stagnating output in the oil sector continue to hamper economic growth. They...