How does contagion risk affect the business cycle? We find that the presence of contagion risk significantly alters the transmission of standard macroeconomic shocks. Relative to the first-best equilibrium, the contagion externality significantly reduces the response of output to a technology...

In this paper, we analyze optimal monetary policy rules in a model of the euro area, namely the ECB’s Area Wide Model, which embodies a high degree of intrinsic persistence and a limited role for forward-looking expectations. These features allow us, in large measure, to differentiate our...

We provide a versatile nowcasting toolbox that supports three model classes (dynamic factor models, large Bayesian VAR, bridge equations) and offers methods to manage data selection and adjust for Covid-19 observations. The toolbox aims at simplifying two key tasks: creating new nowcasting...

In 1936, John Maynard Keynes proposed that emotions and instincts are pivotal in decision-making, particularly for investors. Both positive and negative moods can influence judgments and decisions, extending to economic and financial choices. Intuitions, emotional states, and biases...

The COVID-19 crisis has affected economic sectors very heterogeneously, with possible risks for permanent losses in some sectors. This paper presents a sectoral-level, bottom- up method to estimate euro area potential outputin order to assess the impact of the crisis on it. The estimates are...

This paper provides a detailed description of an extended version of the ECB's New Area-Wide Model (NAWM) of the euro area (cf. Christoffel, Coenen, and Warne 2008). The extended model - called NAWM II - incorporates a rich financial sector with the threefold aim of (i) accounting for a genuine...

In this paper, we consider whether differences in the forecast performance of ECB SPF respondents reflect ability or chance. Although differences in performance metrics sometimes appear substantial, it is challenging to determine whether they reflect ex ante skill or other factors impacting ex...