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Giancarlo Corsetti, Joao B. Duarte, and Samuel Mann
We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity, which we find to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. Building a small open economy model featuring a housing sector and calibrating it to Spain, we show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the responses of output and private consumption.
International Monetary Fund. European Dept.

This Selected Issues Paper analyzes the fiscal position and significant challenges for Luxembourg. Luxembourg’s fiscal position is currently sound, however, fiscal safety buffers are being eroded. The country’s healthy fiscal position will be challenged by forthcoming revenue losses as well as rapid trend growth in expenditures. An overall strategy to address this coming deterioration is needed. Beyond the planned value-added tax increase, recurrent property taxes are a possible additional source of revenue. On expenditures, social benefits should be an area of focus, and reforms of these benefits should also aim to reduce disincentives to work.