This paper evaluates the role of trade and financial linkages in the decision to enter a monetary union. We estimate a two-country DSGE model for the U.K. economy and the euro area, and use the model to compute the welfare trade-offs from joining the euro. We evaluate two alternative scenarios....

This paper investigates the asymmetries in trade spillovers from sector-specific technology shocks in China to selected euro area countries. We use a Ricardian-gravity trade model to estimate sectoral competitiveness in individual euro area countries. Simulations on the impact of productivity...

This paper discusses proposals for common euro area sovereign securities. Such instruments can potentially serve two functions: in the short-term, stabilize financial markets and banks and, in the medium-term, help improve the euro area economic governance framework through enhanced fiscal...

This paper introduces a new dataset on the composition of the investor base for government securities in the G20 advanced economies and the euro area. During the last decades, investors from abroad have increased their presence in government bond markets. The financial crisis broke this trend....

This paper uses a novel variant of identification through hetroscedacity to estimate spillovers across U.S., Euro area, Japanese, and UK government bond and equity markets in a vector autoregression. The results suggest that U.S. financial shocks reverberate around the world much more strongly...

We review the impact of the global financial crisis, and its spillovers into the sovereign sector of the euro area, on the international "rules of the game for dealing with sovereign debt crises. These rules rest on two main pillars. The most important is the IMF's lending framework (policies,...

Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro...

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. Wefind that the introduction of a...

The IMF's Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The results suggest that structural reforms in core...

The ECB has taken a range of actions to address bank funding problems, eliminate excessive risk in sovereign markets, and safeguard monetary transmission. But euro area financial markets have remained fragmented, driving retail interest rates in stressed markets far above those in the core. This...