This paper shows that inflation in industrialized countries is largely a global phenomenon. First, inflations of 22 OECD countries have a common factor that accounts for nearly 70% of their variance. This comovement is due not only to the trend components of inflation (up from 1960 to 1980 and down thereafter) but also to fluctuations at business cycle frequencies. Second, there is a robust error correction mechanism that brings national inflation rates back to global inflation. A simple model that accounts for this feature consistently beats standard benchmarks in forecasting inflation four to eight quarters ahead across samples and countries. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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We construct credit risk indicators for euro area banks and non‐financial corporations. These indicators reveal that the financial crisis of 2008 dramatically increased the cost of market funding for both banks and non‐financial firms. In contrast, the prior recession following the 2000 US dot‐com bust led to widening credit spreads of non‐financial firms but had no effect on the credit spreads of financial firms. The 2008 financial crisis also led to a systematic divergence in credit spreads for financial firms across national boundaries. Credit spreads provide substantial predictive content for real activity and lending measures for the euro area as a whole and for individual countries.

We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it. While the evidence seems to point at differences in consumption responses, rather than investment, as the proximate cause for this fact, the source of the consumption difference remains a puzzle.

The "Great Contraction" in global economic activity triggered by the financial crisis, and the extraordinary fiscal and monetary measures that public authorities had to undertake in order to put the economy back on track by putting public finances under heavy strains and leading to extremely low short-term interest rates, have shown the enormous costs resulting from an unstable financial system. Such costs have triggered wide-ranging reviews of financialstability policies. An important outcome of such a review is the strengthening of policies and instruments focused on macro-financial stability, the so-called "macro-prudential policies." The deployment of such policies may however raise important coordination issues with other stability-oriented policies, ranging from micro-prudential to monetary policies. Such coordination issues This paper benefited from the efforts of several colleagues from the Banque de France Monetary Policy Division (POMONE). We are particularly grateful to Pamfili Antipa, Julien Matheron and Eric Mengus. We are also grateful to Jean-Pierre Landau and Pierre Jaillet for comments and suggestions on earlier drafts. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Banque de France. All remaining errors are ours.

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This paper synthesises the implications of recent statistical evidence regarding inflation persistence in the euro area. For aggregate data, the degree of inflation persistence appears to be very high for sample periods spanning multiple decades but falls dramatically once we allow for time variation in the mean level of inflation; furthermore, the timing of these breaks in mean generally coincides with observed shifts in the monetary policy regime. Finally, sectoral inflation series exhibit much less persistence than aggregate inflation, mainly because of the influence of transitory sector-specific shocks. (JEL: E31, C22, C43)

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