I build a quantitative two-country DSGE model of the European Union (EU) and investigate whether there are welfare gains from fiscal policy cooperation between the new EU members and the euro area (EMU). Fiscal cooperation is defined in terms of joint maximization of the weighted average of...

In this report we outline how a formulating normative measure of macroprudential policy stance requires a framework containing objectives, tools and transmission mechanisms. To complement the currently prevailing narrative approach, we apply lessons from the monetary policy to macroprudential...

After almost four decades of price stability, inflation has recently approached historical highs. Initially driven by global energy and food price increases, the magnitude of the surge in inflation caught central banks and markets by surprise. Price pressures are now increasingly broadening to...

We study the apparent disconnect between what countries announce to be their exchange rate regime and what they de facto implement. Even though discrepancies between announcements and de facto polices are frequent, there is a lack of understanding of actual patterns and underlying reasons. We...

The appropriate design of monetary policy in integrated financial markets is one of the most challenging areas for central banks. One hot topic is whether the rise in liquidity in recent years has contributed to the formation of price bubbles in asset markets. If strong linkages exist, the...

Jean-Claude Trichet deserves praise for fighting inflation and his handling of the financial crisis of 2007-2009. But his legacy is unfinished and we still have to see whether he will be the one who saved the euro. Important challenges remain for the incoming president. First, trust of citizens...

The search for solutions to the euro crisis is based on a partial diagnosis that overemphasises the lack of enforcement of existing fiscal rules. Europe's leaders should rather address the euro area's inherent weaknesses revealed by the crisis. At the core of euro-area vulnerability is an...