Drumetz and Pfister (2021) make several claims about the inadequacy and fallacies of Modern Money Theory (MMT) and conclude that MMT is nothing more than a political manifesto; there are no theoretical and empirical foundations behind it. This paper addresses this last point by focusing on the...

A BMW model is augmented with a credit market affected by banks' balance sheet and used to assess the dynamic performance of an economy in the face of demand and financial shocks under different assumptions about the interactions between monetary and macroprudential policy. We show that the...

This theoretical contribution analyzes remaining monetary policy tools and their ability to reestablish sound macroeconomic conditions in the euro area. Motivated by the observation of a lack of investment in the macroeconomy and subdued inflation, we review current monetary policy challenges...

This Paper, a thorough revision of Spagnolo (1996), addresses the following questions: What is the optimal design for a set of self-enforcing international policy agreements? How many and which issues should each agreement regulate? Are GATT’s constraints on issue linkage (cross-retaliation)...

What kind of additional co-operation (-ordination) is necessary and feasible to cope with the new institutional set-up under EMU? Starting from the episode of the repo rate cut by the ECB in early 1999, it is asked what would have happened under a business as usual scenario. In this case, the...

The current instruments in the EU to deal with debt and liquidity crises include the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). Both are temporary in nature (3 years). In terms of an efficient future crisis management framework one has...

How to conduct macro-prudential regulation? How to coordinate monetary policy and macro-prudential policy? To address these questions, I develop a continuous-time New Keynesian economy in which a financial intermediary sector is subject to a leverage constraint. Coordination between monetary and...

This paper illustrates some of the most important insights of the literature on international fiscal and monetary policy coordination. It notes that the analysis of international policy interactions is enriched by taking the incentives in the domestic policy process into account. These...

Recent research in contract theory views ownership as a substitute for complete contracts. In this paper this approach is applied to monetary integration. Countries face a coordination problem when conducting monetary policy: negative spillovers ensure uncoordinated policy generates too high...

This paper proposes a system of tradable deficit permits for implementing budgetary austerity at the local level. We evaluate the efficiency of the fiscal retrenchment allocation in a dynamic setting with a commitment problem. The way rights are allcated and traded on the market turns out to be...