Among the many challenges facing the new Eurosystem is the possibility that the regions of the euro area will respond differently to interest rate changes. In this essay, I provide evidence that differences in financial structure are the proximate cause for these national asymmetries in the...

Macroprudential stress tests have been employed by regulators in the United States and Europe to assess and address the solvency condition of financial firms in adverse macroeconomic scenarios. We provide a test of these stress tests by comparing their risk assessments and outcomes to those from...

When a bank experiences a negative shock to its equity, one way to return to target leverage is to sell assets. If asset sales occur at depressed prices, then one bank's sales may impact other banks with common exposures, resulting in contagion. We propose a simple framework that accounts for...

This paper is a brief evaluation of the Eurosystem's monetary-policy regime after its first year, in particular of the extent to which it is similar to inflation targeting as practiced by an increasing number of central banks. I examine the Eurosystem's goals, framework for monetary-policy...

The creation of the euro and the European Central Bank is a remarkable and unprecedented event in economic and political history: creating a supranational central bank and leaving eleven countries without national currencies of their own. The experience of the first year confirms that one size...

This paper explores the implications of the European single currency within a simple sticky price intertemporal model. The main issue we focus on is how the euro may alter the responsiveness of consumer prices to exchange rate changes. Our central conjectures is that the acceptance of the euro...

The creation of EMU and the ECB has triggered a discussion of the future of EMU. Independent observers have pointed to a number of shortcomings or hazard areas' in the construction of EMU, such as the absence of a central lender of last resort function for EMU, the lack of a central authority...

Borrowing from the experience of environmental markets, this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the European Monetary Union: having chosen an aggregate target for the Union and an initial distribution of permits,...