In order to fight the economic consequences of the COVID-19 pandemic, monetary and fiscal policy announced a large variety of support packages which are often unprecedented in size. In this paper, we provide an empirical analysis of the responses of European financial markets to these policy...

This paper studies the interaction of international shadow banking with monetary and macroprudential policy in a two-country currency union DSGE model. We find evidence that cross-country financial integration through the shadow banking system is a source of financial contagion in response to...

In the euro area, monetary policy is conducted by a single central bank for 19 member countries. However, countries are heterogeneous in their economic development, including their inflation rates. This paper combines a New Keynesian model and a neural network to assess whether the European...

Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by...

The financial crisis proved strikingly that stabilizing the price level is a necessary but not a sufficient condition to ensure macroeconomic stability. The obvious candidate for addressing systemic risk is macroprudential policy. In this paper we study the optimal monetary and macroprudential...

This paper analyzes the interest rate setting of the European Central Bank (ECB) both before and after the outbreak of the global financial crisis. In the current monetary policy literature, researchers typically select one Taylor rule-based model in order to analyze the interest rate setting of...

The contribution of this paper is twofold. First, we introduce a daily vector autoregression (VAR) model for the US economy that allows discerning between lockdown shocks and a real business cycle shocks. With this methodology at hand, we then evaluate the impact of lockdown measures on economic...

The cross-country interbank market in the euro area was a crucial transmission channel of financial stress. By using a two-country DSGE model of a financially heterogeneous monetary union where banks in one country lend funds to their foreign counterparts, I examine its role as shock ampli.er...

There is growing empirical evidence that the strength of the cost channel of monetary policy differs across countries. Using a New Keynesian model of a two-country monetary union, we show how the introduction of a cost channel (differential) alters the optimal monetary responses to union-wide...

We examine monetary and fiscal interactions in a monetary union model with uncertainty due to imperfect central bank transparency. It is first shown that monetary uncertainty discourages excessive taxation and may thus reduce average inflation and output distortions. However, as countries enter...