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Stabilization and the policy mix in a monetary union

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  • Malmierca, María

Abstract

The need for macroprudential policy to “lean against the wind” of credit cycles at the aim of financial and macroeconomic stability has become a common belief. There is also an increasing interest among policymakers and academics in the interaction between this novel tool and other traditional measures of the policy mix. This paper builds a two-country DSGE model for a monetary union and analyzes, through different macroprudential–fiscal scenarios, the response of the main economic variables to a credit risk shock. When national macroprudential policies are implemented, macroeconomic and financial stability is reached in both countries, regardless the nature of fiscal policy. When macroprudential policies are supranational, macroeconomic stability is higher in the country that suffers the shock while the other country is destabilized, also under all kind of fiscal scenarios considered.

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  • Malmierca, María, 2022. "Stabilization and the policy mix in a monetary union," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 92-118.
    • Handle: RePEc:eee:quaeco:v:83:y:2022:i:c:p:92-118
    DOI: 10.1016/j.qref.2021.11.004
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    Cited by:

    1. Malmierca, María, 2023. "Optimal macroprudential and fiscal policy in a monetary union," Economic Modelling, Elsevier, vol. 122(C).

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    More about this item

    Keywords

    Currency area; Macroprudential; Monetary and fiscal policies; Financial frictions; Public and private debt;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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