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 studies how foreign investors' concerns about model misspecification affect sovereign bond spreads. We develop a general equilibrium model of sovereign debt with endogenous default wherein investors fear that the probability model of the underlying state of the borrowing economy is...

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 impact of adaptive learning for the design of a robust monetary policy using a small open-economy New Keynesian model. We find that slightly departing from rational expectations substantially changes the way the central bank deals with model misspecification. Learning induces an...

We study an optimal robust monetary policy for a small open economy. The robust control approach assumes that economic agents cannot assign probabilities to a set of plausible models and rather focuses on the worst possible misspecification from a benchmark model. Our findings suggest that,...

This paper studies the design of optimal time-consistent monetary policy in an economy where the planner trusts its own model, while a representative household uses a set of alternative probability distributions governing the evolution of the exogenous state of the economy. In such environments,...

The first part of this paper outlines the concept of democratic accountability of central banks, and compares the legal accountability of the ECB with some other central banks (Bank of Canada, Bank of Japan, Bank of England and the Federal Reserve System). In the second part, we present a theory...

We analyse the interaction between private agents? uncertainty about inflation target and the central bank's data uncertainty. In our model, private agents update their perceived inflation target and the central bank estimates unobservable economic shocks as well as the perceived inflation...