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The eurozone: What is to be done to maintain macro and financial stability?

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journal contribution
posted on 2022-10-03, 14:42 authored by Patrick Minford, Zhirong Ou, Michael Wickens, Zheyi Zhu

 The financial stability of the eurozone depends on its macroeconomic stability and vice versa. We construct a macro DSGE model of the eurozone and its two main regions, the North and the South, with the aim of matching the macro facts of these economies by indirect inference and using the resulting empirically-based model to assess possible new policy regimes that could maintain financial stability. The model we have found to fit the facts suggests that substantial gains in stability and consumer welfare are possible if the fiscal authority in each region is given the freedom to respond to its own economic situation. Further gains could come with the restoration of monetary independence to the two regions, in effect creating a second ‘southern euro’ bloc. Enhanced fiscal flexibility increases fluctuations in debt and deficit ratios to GDP while keeping average ratios stable, maintaining solvency. A reformed Stability and Growth Pact could be limited to monitoring solvency. 


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Journal of Financial Stability




  • VoR (Version of Record)


Minford, P., Ou, Z., Wickens, M. and Zhu, Z. (2022) 'The eurozone: what is to be done to maintain macro and financial stability?', Journal of Financial Stability, p.101064. DOI: 10.1016/j.jfs.2022.101064

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Cardiff Met Affiliation

  • Cardiff School of Management

Cardiff Met Authors

Zheyi Zhu

Cardiff Met Research Centre/Group

  • Welsh Centre for Business and Management Research

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  • © The Authors


  • en

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