We show the competing effects of a housing bubble on the real economy by developing a two-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their houses to obtain financing, so a housing bubble helps firms obtain credit to finance their investment and...

An active role of fiscal policy has been rediscovered as a crisis remedy at the beginning of the financial crisis all over Europe. More recently, the Euro Crisis with its mounting governments' funding costs for a number of Southern EU member states and Ireland has called this strategy into...

We use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, we investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they...

This paper argues that scholarship on the varieties of capitalism could provide a more complete understanding of fiscal policy convergence in the Eurozone after 2010 if it better examined the interdependencies between banks and sovereigns. Recently, this scholarship has explained fiscal...

In mid-September 2008, a global financial crisis erupted which was followed by the most serious worldwide economic recession for decades. As in many other regions of the world, governments in the euro area stepped in with a wide range of emergency measures to stabilise the financial sector and...

The paper analyses the linkages from financial developments to public finances. It maps and discusses the transmission channels to fiscal variables. These channels include asset prices, financing conditions, balance sheets of banks, non-banks and central banks and international linkages. The...

After the financial crisis of 2007, in most economies carrying out either fiscal consolidations or counter-cyclical fiscal policies, public and private debt have moved in opposite directions, as opposed to pre-2007 evidence. Private deleverage and public debt build-up may affect the recovery...

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets...

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets...