A long-standing area of research and policy interest has been the construction of a measure of monetary policy stance. One measure that has been proposed—as an alternative to indices that employ monetary aggregates or exchange rates—is the spread between the actual real interest rate and its...

This study analyses whether expected budget deficits have an impact on interest rate swap spreads in France, Germany and Italy. We use monthly deficit forecasts from financial market participants to take the forward-looking behaviour of financial markets into account. Results of a SUR estimation...

We investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest spreads contained in bond yields of the countries now belonging to the Eurozone. Deficits significantly increase risk premia measured by relative swap...

We study the determinants of euro area sovereign bond spreads since the introduction of the euro. An aggregate risk factor is a main driver of spreads, both directly and indirectly by interacting with the size and structure of national banking sectors. When aggregate risk increases, countries...

The IMF began to play a prominent role in low-income countries in the late 1970s and 1980s when many countries faced overvalued exchange rates, growing budget deficits, high inflation, and low reserves. But times have changed, and many low-income countries no longer face these problems and do...

This paper studies the optimal debt repayment policy of a government facing a credibility problem: the public is uncertain about whether the outstanding public debt will be repaid in full or in part and requires a risk premium to roll it over. The model determines when it is optimal for the...

The paper establishes that sovereigns, like banks, need a lender of last resort (LoLR). In the euro area the ECB, with its estimated €3.4 trillion non-inflationary loss absorption capacity, is the only credible sovereign LoLR. The ECB/Eurosystem has been acting as sovereign LoLR through its...

We study the determinants of sovereign bond spreads in the euro area since the introduction of the euro. We show that an aggregate risk factor is a main driver of spreads. This factor also plays an important indirect role for risk spreads through its interaction with the size and structure of...

This paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance. The topic is important to investors and also to policymakers, who wish to extract macroeconomic expectations...

In macroeconomic models, the level of price dispersion - which is typically approximated through its relationship with inflation - is a central determinant of welfare, the cost of business cycles, the optimal rate of inflation, and the tradeoff between inflation and output stability. While the...