This paper is a non-technical and somewhat philosophical essay, that seeks to investigate the relationship between economics and reality. More precisely, it asks how reality in the form empirical evidence does or does not influence economic thinking and theory. In particular, which role do...

I conclude from that that the variant with uncertainty averse investors is more suitable to analyze policy implications. This paper therefore provides a model, in which the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the...

This paper compares monetary policy in the US and EMU during the last decade, employing an estimated hybrid New Keynesian cash-in-advance model, driven by five shocks. It appears that the difference between the two monetary policies between 1998 and 2006 is due to both surprises in productivity...

Fifteen years after German reunification, the facts about slow regional convergence have born out the prediction of Barro (1991), except that migration out of East Germany has not slowed down. I document that in particular the 18-29 year old are leaving East Germany, and that the emigration has...

This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any...

After remaining close to 1 US Dollar since its inception in November 2020, the algorithmic stablecoin UST crashed in the two weeks of May 9th to May 15th, 2022, leading to a price collapse of the underlying LUNA token and the erasure of more than 50 Billion U.S. Dollar or 90% in market value

I discuss private and central-bank-issued digital currencies, summarizing my prior research. I argue that prices of private digital currencies such as bitcoin follow random walks or, more generally, risk-adjusted martingales. For central bank digital currencies, I argue that they enhance the...

The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but...

We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk-...

Interbank money markets have been subject to substantial impairments in the recent decade, such as a decline in unsecured lending and substantial increases in haircuts on posted collateral. This paper seeks to understand the implications of these developments for the broader economy and monetary...