We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

Using arbitrage-free affine models, we analyze the dynamics of German bond yields and risk premia for the period 1999 to 2010 (EMU). We estimate two model specifications, one with only latent factors, and another one with a Taylor-type rule comprising a price and a real activity factor drawn...

We investigate the e ect of monetary policy on European macroeconomic variables using a small-scale vector autoregression (VAR) and the "Effective Monetary Stimulus" (EMS). The EMS is a monetary policy metric obtained from yield curve data that is designed to consistently reflect the overall...

The impact of unconventional monetary policies on exchange rates and its spillovers to other economies is not yet fully understood. In this paper I develop a two-country DSGE model with interbank markets and endogenous default probabilities to analyze the cross-border impacts of unconventional...

We tackle two questions in this paper: In the sovereign debt crisis, what moves the euro area inflation outlook and has the firm anchoring of medium to long-term inflation expectations been touched? Deriving densities from a new data set on options on the euro area harmonized index of consumer...

This paper compares the consequences of equity injections into banks with purchases of corporate and government bonds in a financial crisis situation using a New Keynesian model in which non-financial firms predominantly take non-market-based debt from banks instead of issuing securities. Our...

We analyze the contribution of credit spread, house and stock price shocks to GDP growth in the US based on a Bayesian VAR with time-varying parameters estimated over 1958-2012. Our main findings are: (i) The contribution of financial shocks to GDP growth fluctuates from about 20 percent in...

The paper analyses the transmission of global financial shocks to individual member states of the European Monetary Union (EMU), in which monetary policy is delegated to the ECB and financial markets are fully integrated. Using a panel VAR model, we show that the asymmetric effects of global...