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Using a new database of actual import price data, and not unit value indices, for several euro area countries during the period between June 2005 and April 2011, we provide new results on the Exchange Rate Pass Through (ERPT). First, we use a multi-currency approach to distinguish between invoicing strategies across the most important currencies for euro area imports and show that the effective ERPT is primarily driven by the US Dollar ERPT. The firms which invoice in US Dollar (and in Chinese Yuan) are more concerned with demand conditions, while those which invoice in British Pound are more concerned with profit margins. Second, in contrast to several papers in the empirical literature that argue that ERPT is incomplete and its value is declining, we find that short run effective ERPT is incomplete, while long run effective ERPT is complete for a large number of products. Third, we uncover significant heterogeneity across products and countries: ERPT in US Dollar and British Pound appears higher than average for raw materials (e.g. petroleum products) and lower for transformed manufacturing products (chemical, pharmaceutical products and motor vehicles), and ERPT is higher in Spain than in the other euro area countries considered. Fourth, the 2008 global crisis triggered a temporary increase in the effective ERPT.

In order to assess transmission mechanisms between global and domestic house prices, and possibly contagion effects, we use a large database of macroeconomic variables for OECD countries. We extract common factors to summarize the comovements of the variables and include them in stationary FAVAR models. We mainly focus on the "pandemic" view of contagion where local shocks, originating from a country or a local housing market, spread out to other domestic housing markets. An interesting finding is that, even allowing for other channels of international transmission (through global interest rates, or activity), the US real house prices, which appear to be exogenous in the US dynamics, unidirectionally causes the international house price factor, which in turn causes the domestic real house price growth for several countries. The channels of contagion from the US appears therefore to be either direct, through house prices (in particular in the UK or Spain), or indirect through other variables.

The paper discusses the issue of estimating short- and long-run exchange rate pass-through to import prices in euro area countries and reviews some problems with the measures recently proposed in the literature. Theoretical considerations suggest a long-run Engle and Granger cointegrating relationship (between import unit values, the exchange rate and foreign prices), which is typically ignored in existing empirical studies. We use time series and up-to-date panel data techniques to test for cointegration with the possibility of structural breaks and show how the long-run may be restored in the estimation. The main finding is that allowing for possible breaks around the formation of EMU and the appreciation of the euro starting in 2001 helps restore a long run cointegration relationship, where over the sample period the fixed component of the pass-through decreased while the variable component tended to increase.

This paper develops a broad concept of systemic risk, the basic economic concept for the understanding of financial crises. It is claimed that any such concept must integrate systemic events in banking and financial markets as well as in the related payment and settlement systems. At the heart of systemic risk are contagion effects, various forms of external effects. The concept also includes simultaneous financial instabilities following aggregate shocks. The quantitative literature on systemic risk, which was evolving swiftly in the last couple of years, is surveyed in the light of this concept. Various rigorous models of bank and payment system contagion have now been developed, although a general theoretical paradigm is still missing. Direct econometric tests of bank contagion effects seem to be mainly limited to the United States. Empirical studies of systemic risk in foreign exchange and security settlement systems appear to be non-existent. Moreover, the literature surveyed reflects the general difficulty to develop empirical tests that can make a clear distinction between contagion in the proper sense and joint crises caused by common shocks, rational revisions of depositor or investor expectations when information is asymmetric ('information-based' contagion) and 'pure' contagion as well as between 'efficient' and 'inefficient' systemic events. JEL Classification: G21, G29, G12, E49

This paper aims at determining whether economic, financial and monetary integration on the one hand, and institutional factors on the other, may have led to gradual convergence in key fiscal variables across the euro area over the recent period, bringing fiscal positions closer together. The Maastricht convergence criteria have facilitated this process but we investigate here whether the structural factors bringing fiscal positions closer together have been a feature of European integration starting already in the 1970s. The alternative scenario is that the euro zone is still characterised by largely idiosyncratic national fiscal policies. Over the 1970-1998 period we run contemporaneous cross-correlation, dispersion and cointegration tests using annual data for government net lending, and total current revenue and expenditure to uncover common trends, as measures of fiscal convergence. We also investigate whether the short term fiscal position in a given country shares both a common euro area component and national features (i.e., idiosyncratic national cycles) using a dynamic factor analysis on quarterly data for the four largest euro area countries since 1985. We find convincing evidence that for euro area countries cross-correlation has increased steadily over the sample period and that fiscal dispersion has been declining at a sustained pace among all countries in the sample. There is evidence of cointegration across the euro area for several countries on the basis of total current revenue, and also for total current expenditure. However, when the series are corrected for the business cycle, cointegration is only accepted for net lending. There is clearly common fiscal cycles for net lending across the euro area that do not only express common business cycles. However, while countries have followed more similar policies in the 1990s in particular during the run-up to EMU, the timing of fiscal adjustment differed across countries. In addition, idiosyncratic components still contribute to a significant share of the variability of individual countries.

In order to assess the effect of EMU on market conditions for banks based in countries which adopt the Single Currency, we use the H indicator suggested by Panzar and Rosse (1987). Our contribution is to assess results separately for large and small banks, and for interest income and total income as a dependent variable. From a panel of banks over the period 1992-1996, we provide evidence that European banking markets for large banks in the mid-1990s were still characterised by monopolistic competition, as compared to the United States. Regarding small banks, the level of competition appears to be even lower, especially in France and Germany. EMU would therefore imply a notable rise in competition for small banks in France and Germany, as well as an increase in competition for large banks, especially in Italy. JEL Classification: G21, L12

The paper investigates, from the welfare and growth point of view, the existence of a trade-off between the stability and the efficiency of the banking system, studying the costs and benefits of regulatory programs. Welfare is considered in the context of an overlapping generation model with endogenous growth. There is horizontal differentiation and imperfect competition in the banking sector. Macroeconomic shocks affect the return on capital. We specify how deposit insurance may increase the number of deposits, welfare and growth. We characterize the conditions under which excess banking capacity may appear and how its reduction may improve welfare