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...

This paper investigates the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimizing-based multi-country model (MCM) describing the euro area in which dicurren;erences between structural parameters across countries are...

This paper investigates the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimizing-based multi-country model (MCM) describing the euro area in which differences between structural parameters across countries are allowed....

In this paper we estimate and forecast with a small-scale DSGE model of the Euro area and the United States characterized by diverging interest-rate rules using quarterly data from 1996Q2 to 2011Q2. These diverging rules reflect the differing mandates of the ECB and the Fed, respectively. Due to...