We build a two-country DSGE model of a monetary union to compare systematically the economic impact of a fiscal stimulus according to different features: domestic or European, public investment or public consumption, unfunded (thanks to grants) or debt-funded, on the core or periphery, and in normal or abnormal (post-ZLB) times. We highlight the importance of spillover wealth effects. Grants play a more important role when it comes to funding public consumption rather than investment, in contrast with the actual use of collective EU funds. A side result permits to assess the opportunity cost of accepting loans.

Differences in labour market institutions and regulations between countries of the monetary union can cause divergent responses even to a common shock. We augment a multi-country model of the euro area with search and matching framework that differs across Ricardian and hand-to-mouth households. In this setting, we investigate the implications of cross-country heterogeneity in labour market institutions for the conduct of monetary policy in a monetary union. We compute responses to demand and supply shocks under the Taylor rule, asymmetric unemployment targeting, and average inflation targeting. For each rule we distinguish between cases with lower or higher weight on the unemployment gap. Across all rules, responding to unemployment leads to lower losses of employment. Responding to unemployment reduces cross-country differences within the monetary union and consumption inequality between rich and poor households within each country.

Within a new Keynesian model of monetary policy with both backward- and forward-looking variables, we investigate the impact of risk aversion by assuming that the central bank is endowed with recursive preferences à la Hansen and Sargent (Hansen and Sargent, 1995). We establish that, since in this model inflation and output are forward-looking, under discretion the optimal policy is found by solving two distinct fixed-point problems: the former pertains to the central bank’s optimization exercise, the latter to the identification of the equilibrium expectations of the forward-looking variables. We show that, in the presence of forward-looking variables, the optimal policy differs from the robust policy chosen by a central bank endowed with quadratic preferences and subject to Knightian uncertainty, confuting the equivalence established by Hansen and Sargent (2008) when only backward-looking variables enter into the laws of motion regulating the dynamics of the economic system. Through our analysis we show: i) how a risk-averse central bank selects a more aggressive policy than one furnished with the standard preferences of a canonical DSGE model; ii) that the “divine coincidence” established within traditional linear-quadratic formulations between inflation and output stabilization no longer holds.

This paper uses a dynamic general equilibrium approach that takes into account the macroeconomic implications of the green transition and its consequences for public finances. It shows that when the government relies too heavily on expenditure-based measures, it threatens the sustainability of public debt, by increasing the probability of sovereign default, leading to higher interest rates on government bonds. This higher public default risk has potentially significant repercussions on investment financing conditions for the private sector, and increases the cost of the transition to a net-zero economy. On the other hand, carbon pricing policies make the transition more viable for public finances, at the expenses of similarly high economic costs, while remaining effective in reducing greenhouse gas emissions. The welfare-maximizing optimal policy mix results in a balanced approach, with the public sector’s contribution to the total mitigation effort increasing gradually, ranging from 25% to 40% between 2030 and 2050.

This paper analyzes the relationship between microfinance, competition, and growth in a sample of 119 countries over the period 1999–2018. Our results are fourfold. First, we show that microfinance increases economic growth. Second, we identify investment and consumption as the main channels explaining the positive effect of microfinance on growth. Third, our study highlights that the conventional financial sector and microfinance are substitutes and not complements in emerging and developing countries. Finally, we show that competitive microfinance markets allow increasing the positive effect of microfinance on growth.