 In countries hit by the sovereign debt crisis, the share of domestic sovereign debt held by the national banking system has sharply increased. I analyzed this in a model with optimizing banks and depositors, and find that banks have an incentive to gamble on domestic sovereign debt while depositors' sentiments about bank risk-taking become self-fulfilling. Policy interventions face a trade-off between offsetting these sentiments and strengthening incentives to gamble. In this paper we asked whether unconventional monetary policy is effective in restoring bank credit supplied during crisis. To answer this question, we analyzed the ECB-3 year LTROS. We show that central bank liquidity successfully reached firms through those banks that were hit the most during the crisis. However, the large liquidity provision also incentivized purchases of risky securities by banks. I look forward to discussing this important trade-off for monetary policy during this exciting forum. When we started thinking about stress testing, it struck us that the financial press was talking a lot about how banks were clinging at the balance sheets ahead of the tests. So we collected data on how banks behaved in anticipation of the comprehensive assessment, and we do indeed find that banks reduced leverage. However, they reduced leverage by shrinking assets rather than by raising equity, and that suggests that there's a macroprudential dimension to stress testing since, as a regulator, you want to make sure there's enough equity in the system as a whole, and not just that each individual bank hits its tier one ratio. Around late 2008, authorities across the globe used a diverse set of tools to inject trillions of euros worth of liquidity into distressed banking systems. However, not much research yet has compared these specific tools. My modeling suggests that lending to banks against securities as collateral prevents those securities from being sold, which softens fire-selling and preserves banks' capital. The constraint on selling also raises the minimum that illiquid banks must borrow, which enhances the authority's ability to discipline liquidity risk-taking using penalty rates. The sharp depreciation of the Hungarian foreign in 2009 showed again that currency carat rate can go wrong. As Hungarian firms were left with skyrocketing value of foreign currency debt, they tended to underinvest. This motivated us to explore the macroeconomic consequences of shifting currency mismatch losses from borrowers to banks. We find that if banks have to bear the exchange rate risk, macroeconomic losses are smaller. We investigate the past through the recent sovereign crisis due to direct holdings of distressed sovereign securities in the portfolios of financial intermediaries. We document a sharp credit tightening by banks more exposed to sovereigns, especially in those financial institutions closer to the regulatory capital pressure. We also note the contraction of employment and investment, but only as small firms borrow and from more exposed lenders. I investigate on how should monetary and macroeconomic policies be coordinated, in a model in which banks also play a role. According to my findings, monetary policy responding to financial imbalances is welfare-improving, although it comes with the cost of higher inflation volatility. Moreover, an institutional arrangement in which monetary policies are set together with macroeconomic policies are also welfare-improving, even in the case in which price and financial stability goals are assigned to independent authorities. We build a DSD model to allow for intermediate materials as an additional factor in firm's production. What we find is that the marginal cost in the new framework behaves very differently and is stable over the period of great recession precisely because the real intermediate input prices were increasing. As a result, the model no longer requires large degree of price rigidities or a flat Phillips curve to explain lack of deflation. We use the model for out-of-sample forecast and we show that the model can indeed predict most of inflation and output dynamics over this period. Thank you. Before the crisis, European banks used securitization to transfer credit risk, but during the crisis, they issued and retained asset tax securities, mostly to increase eligible collateral for repopulations. I investigate the capital management of original banks and I find that, in the crisis time, banks with an exante weaker liquidity condition obtain larger improvements in risk-based capital ratios after the issuances of eligible ABS. We have seen population growth falling in most developed countries. In this paper, using data for the US, I find a positive link between population growth and the so-called natural rate of interest. This means for monetary policy that with falling population growth, nominal interest rates should be lowered as well.