The Eurozone Debt Crisis has rekindled the debate on the nexus between currency areas and fiscal sovereigns. After the crisis, much of the intellectual and political debate has been on the benefit of a fiscal union, the idea of creating a common fiscal entity that is well equipped to make...

We analyze a variant of the Diamond-Dybvig (1983) model of banking in which savers can use a bank to invest in a risky project operated by an entrepreneur. The savers can buy equity in the bank and save via deposits. The bank chooses to invest in a safe asset or to fund the entrepreneur. The...

This paper proposes a metric for a financial fragility index for the Chinese banking sector. This metric is a weighted average of two variables: bank profitability and multiple probability of undercapitalization. The weights of the two variables are assigned based on their effects on real...

Commodity-exporting economies display procyclicality with the price of commodity exports. However, the evidence for the relative importance of commodity price shocks for aggregate fluctuations remains inconclusive. Using Russian data from 2001-2018 we estimate a small open economy New Keynesian...

Ever since the Great Financial Crisis, if not before, it has become clear that there are complex interactions between the real and nominal sectors of the economy. When do monetary and financial policy goals conflict with each other? When is monetary policy a complement to or a substitute for...

We show that the path of inflation under quantitative easing policies that target interest rates, is determitate in the presence of default. We achieve this through different payoff profiles that a collateralised defaultable bond achieves in different states of nature with distinct default...

The drafting of macroprudential regulation is largely being driven by the need by policy makers to meet timetables that have been agreed. The legislative drive is taking place without any clear theoretical framework to organise the objectives. In this article we propose two principles that any...

We analyze a variant of the Diamond-Dybvig (1983) model of banking in which savers can use a bank to invest in a risky project operated by an entrepreneur. The savers can buy equity in the bank and save via deposits. The bank chooses to invest in a safe asset or to fund the entrepreneur. The...

We examine the role that credit risk in the central bank's monetary operations plays in the determination of the equilibrium price level and allocations. Our model features trade in fiat money, real assets and a monetary authority which injects money into the economy through short-term and...

Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms...