In 2007, countries in the euro periphery were enjoying stable growth, low deficits and low spreads. Then the financial crisis erupted and pushed them into deep recession, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly,...

This paper aims to identify how much of the recent current account adjustment in Spain can be explained by cyclical factors. For this purpose, we consider the cross-country regressions in the IMF's External Balance Assessment (EBA) methodology but allowing for country-specific slopes and...

Global imbalances and financial market (de)regulation both feature prominently among the potential causes of the global financial crisis, but they have been generally discussed separately. In this paper, we take a different angle and investigate the relationship between financial market...

This paper investigates the welfare and economic stabilization properties of a fiscal transfers scheme between members of a monetary union subject to sovereign spread shocks. The scheme, which consists of cross-country transfer rules triggered when sovereign spreads widen, is incorporated in a...

We study simple fiscal rules for stabilizing the government debt level in response to asymmetric demand shocks in a country that belongs to a currency union. We compare debt stabilization through tax rate adjustments with debt stabilization through expenditure changes. While rapid and flexible...

Motivated by the failure of fiscal rules to eliminate deficit bias in the euro area, this paper analyzes an alternative policy regime in which each Member State government delegates at least one fiscal instrument to an independent authority with a mandate to avoid excessive debt. Other fiscal...

This paper studies the effects of delegating control of sovereign debt issuance to an independent authority in a monetary union where public spending decisions are decentralized. The model assumes that no policy makers are capable of commitment to a rule. However, consistent with Rogoff (1985)...

This paper analyzes the joint behavior of international capital flows by foreigners and domestic agents over the business cycle and during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile relative to net capital flows. Namely, when...

We examine the determinants of external stress episodes through probit analysis, focusing on the role of foreign liabilities in order to build an external crisis early warning indicator for a set of selected EMU countries. We use a panel country data spanning 1970-2011 from External Wealth...

Reversals in capital inflows can have severe economic consequences. This paper develops a dynamic general equilibrium model to analyze the effect on interest rates, asset prices, investment, consumption, output, the exchange rate and the current account of a shift in portfolio preferences of...