It is well-known that the high synchronization of the business cycles among industrial countries cannot easily be replicated in standard open economy macroeconomic models without assuming that the exogenous shocks hitting these countries are highly correlated. We develop a two-country behavioral...

This contribution focuses on a recent proposal put forward by the European Systemic Risk Board to create a “safe asset” for the eurozone based on a repackaging of the risks of sovereign bonds, in the hope of stabilising an otherwise unstable system of sovereign bond markets. In the present...

Serial correlation in macroeconomics is pervasive. Macroeconomic modellers find it impossible to model this feature without relying on serially correlated shocks. Using a behavioral macroeconomic model, I show that serial correlation in inflation and output can easily be explained in the context...