• Signs of a slowing world economy are piling up: Since the beginning of the year purchasing manager indices have been declining globally, in summer higher US interest rates led investors to withdraw capital from emerging markets, and as a consequence, capital costs rose and currencies depreciated in many emerging markets economies. In October stock prices decreased markedly worldwide including the US, despite the strong upswing in this country. • As a consequence of the turmoil on financial markets, monetary conditions in many emerging economies are no longer favorable. What ultimately counts for the prospects of the global economy, is, however, the performance of the US, the Euro area, China and Japan. The upswing in the US appears stable enough to continue well into 2019. While at present the rest of the group appears to lose momentum, there is a good chance that production in each of these economies will still expand at rates that are close to their potential growth. Further protectionist rounds are the most important risk to this scenario. • In the first half of the current year the euro area economy expanded at a markedly slower rate than in 2017, about 0.4% per quarter, but still substantial. Rising risk premia on Italian assets will probably force banks in this large country to tighten credit conditions, and a slowing world trade will dent export growth. All in all, we expect GDP growth in the euro area to go down from 2.4% in 2017 to 2.0% in 2018 and to 1.7% in 2019. • Employment continues to expand and vacancy rates are at present higher than in 2017. As a consequence, wages rise more quickly: nominal compensations per employee started accelerating early in 2017, and negotiated wages followed at the beginning of 2018. Wage inflation of slightly below 2.5% and healthy growth in employment raise real labor incomes markedly. • Our forecasts are based on the assumption that rating agencies will continue as-signing investment grade to the Italian government debt, and that the Italian government and the European Commission will find a compromise about the draft budget of the country in the coming weeks. Another assumption is that the UK will not exit the EU in an unorderly way in March 2019.

Since the global financial crisis, monetary economics new questions include the explanation and response to unusual consumer price developments but also the interdependencies between financial markets and real economic activity and its implication for the monetary policy transmission mechanism. This dissertation investigates these questions by presenting empirical evidence that accounts for non-linearities of the relevant economic relations. The first and second chapters examine inflation dynamics of the Euro area and ASEAN-5 economies using non-linear Phillips curve models. The results suggest that changes in inflation processes are mainly driven by the development of long-term inflation expectations. The third chapter investigates the evolution of the financial accelerator (FA) taking into account the developments of the financial sector. The results of a time-varying structural vector autoregressive model indicate that the FA effect for the USA has increased from the early 1990s.

• In summer 2018 the cyclical upswing of the world economy is not over, but it appears to be fragmenting. While economic activity in the European Union has lost steam, the upswing in the US has gained pace, and growth in China appears to be robust. • Markets for commodities as well as for capital are at present strongly affected by political movements: oil prices are more than 50% higher than one year ago, as the US exit from the Iran nuclear deal puts the long run oil supply from Iran at risk, and the strongly expansionary US tax reform explains the rise in US long run interest rates. . • Uncertainties about the future international trade system cause firms to slow down or even reverse the globalization of value chains. As an early consequence, world trade in the second half of 2018 and in 2019 will expand at much slower rates than during 2017. • In the euro area growth slowed in the first quarter 2018, due to weaker investment activity in France and Italy and, more importantly, a fall in exports in all larger euro area economies except Spain. However, the drivers of the upswing such as low interest rates for credit and expanding real incomes will still be supportive in the near future, and fiscal policies will be slighly more expansionary. But a slowdown in world trade will dent export growth as well as corporate profits. All in all, we expect GDP growth in the euro area to go down from 2.4% in 2017 to 2.1% in 2018 and to 1.7% in 2019 – a forecast that will only be realized if damages to the international trade system are limited and if the European sovereign debt crisis does not come back. • While wage inflation has been slowly increasing during the past quarters to about 2%, a clear upwards trend of core consumer price inflation is still not detectable. The recent jump of the headline rate to 1.9% is due to higher oil prices. Our forecasts for 2018 and 2019 are close, although still below, 2%.

• The world economy is booming. The global upswing is investment-driven, and since investment goods usually have a large import content, it is no surprise that world trade has been buoyant during winter. The very expansionary US fiscal policy (tax reform and lifting of spending caps) could give an additional shortterm stimulus for the world economy. • However, we forecast world trade to slow down during 2018. The US administration’s announcement of high tariffs on steel and aluminium comes close to triggering a spiral into a broader trade conflict. Moreover, the globalization of value chains has been slowing down since the financial crisis due to the industrial upgrading in China and in other emerging economies that has declined processing trade. In addition, some types of manufacturing jobs have returned to source countries (reshoring) in response to technology innovation and lower labour costs differentials. • The euro area is in the middle of a broad based cyclical upswing. Higher exports and improved expectations have induced firms to invest more into equipment, as capacity utilization has been above average for some time now and is still increasing, and financing costs are very low. However, recent soft indicators, but also industrial production have been surprisingly downbeat, and there was some turbulence in financial markets, which suggests some caution. • The ECB will probably stop its asset purchase program at the end of 2018, but only later in 2019 start raising interest rates. Fiscal policy in the euro area is slightly expansionary this year, and a notable fiscal stimulus in France and in Germany is to be expected for 2019. • Overall, we forecast euro area GDP to expand by 2.2% in 2018 and by 1.6% in 2019. Accelerating wage dynamics will, together with higher price setting powers of firms and the recent increase in oil prices, cause consumer price inflation rising to nearly to 2% in 2019. Uncertainty, is however substantial, as a slight slowdown cannot be ruled out, which would also impact inflation dynamics.

The adverse macroeconomic consequences of the Great Recession in 2009 spread well beyond the United States, highlighting the importance of financial stability and the housing market for real economic activity. Moreover, the vicious bank-sovereign cycle and the resulting sovereign-debt crisis of 2010-2012 posed a big threat to the survival of the Economic and Monetary Union (EMU) as a whole. While there is widespread consensus about the underlying causes of these crises, policy makers are still debating about what can be done to prevent future crises and, especially in the Euro area, deeply disagree on the direction of reforms. After all, most regulatory measures face not only the trade-off between financial resilience versus efficiency but also the fundamental choice between rule or discretion based interventions (Bénassy-Quéré et al., 2018).

In this paper, we investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of nonfinancial firms’ refinancing costs in the Euro area during the European debt crisis and how they did affect the monetary transmission mechanism. We identify the increasing effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms’ financing costs using an instrumental-variable approach. Moreover, we estimate both sources of stress to have significantly impaired the monetary transmission mechanism during the European debt crisis.

With advanced economies likely to face over-utilization of economic capacities in 2018 for the first time since the Great Recession, companies will further expand their investment activities. Price and wage dynamics will pick up globally, triggered by the recent increase in energy prices. A major risk for the world economy pertains to financial markets: measures for risk tolareance and valuations for many types of assets have approached levels last reached ten years ago, on the eve of the financial crisis. A sudden readjustment of asset prices and risk premia could worsen financial conditions globally and seriously affect the global economy. The cyclical upswing of the euro area economy continues. The recovery, under way since summer 2013, transformed into an upswing in autumn 2016 when demand from outside the euro area increased quite abruptly; higher exports and improved expectations have contrinuted to induce firms to invest more into equipment. Wage dynamics in the euro area appear to increase, but only slowly. An annual growth rate for hourly wage costs of about 2% is still not enough to put upward pressure on prices, but this will change eventually as the cyclical upswing is likely to continue. Inflation will, according to our forecast, reach the ECB’s target of below but close to 2% in the second half of 2019. Conditions for further healthy growth in the euro area are in place, but employment dynamics might markedly lose momentum in some member countries in the second half of 2018, as the potential labour force is becoming more and more exhausted. Overall, we forecast euro area GDP to grow by 2.2% in 2018 and by 1.5% in 2019.