Over the last two decades the intensity of credit standards' tightening during economic contractions has exceeded their easing during expansions among euro area banks. This mechanism is fed by the boom-bust cycle of credit that, as much research has shown, is linked to financial instability with...

In a floor system of monetary policy implementation, the central bank remunerates bank reserves at or near the market rate of interest. Some observers have expressed concern that operating such a system will have adverse fiscal consequences for the public sector and may even require the...

There is a large literature on the effect of exchange rate arrangements on trade. The monetary policy used in the floating exchange rate regime, however, is usually ignored and unidentified in the empirical studies. This makes the effect of alternative monetary policy regimes on trade remains...

This paper shows how interbank market fragmentation disrupts the transmission of monetary policy. Fragmentation is the fact that banks, depending on their country of location, have different probabilities of default on their interbank borrowings. Once fragmentation is introduced into standard...

In response to the Great Recession, the Federal Reserve resorted to several unconventional policies that drastically altered the landscape of the federal funds market. The current environment, in which depository institutions are flush with excess reserves, has forced policymakers to design a...

Bitcoin has enabled competition between digital cryptocurrencies and traditional legal tender fiat currencies. Despite rapidly increasing acceptance, so far the affirmation of cryptocurrency as better money has been thwarted by dramatic deflationary price instability. Successful at disposing of...

In response to the Great Recession, the Federal Reserve resorted to several unconventional policies that drastically altered the landscape of the federal funds market. The current environment, in which depository institutions are flush with excess reserves, has forced policymakers to design a...

Modern macroeconomists in the Austrian tradition can be divided into two groups: Rothbardians and monetary equilibrium (ME) theorists. It is from this latter perspective that we consider the events of the last few years. We argue that the primary source of business fluctuation is monetary...

We study the substitution between secured and unsecured interbank markets. Banks are competitive andsubject to reserve requirements in a corridor rate system with deposit and lending facilities. Banks face counterparty risk in the unsecured market and incur an opportunity cost to pledge...

The paper answers three questions.(1) Does it matter if a central bank suffers a large capital loss? (2) Can the central bank become insolvent? (3) When, how and by whom should the central bank be recapitalised?