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Asset-Based Reserve Requirements: A New Monetary Policy Instrument for Targeting Diverging Real Estate Prices in the Euro Area

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  • Michael Holz

    ()
    (University of Trier)

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    Abstract

    Can monetary policy prevent real estate bubbles from harming economic welfare? The European Central Bank (ECB) has to conduct monetary policy for the Euro area as a whole, but her policy affects countries with rapidly rising house prices (e.g. Spain) in a markedly different way than those with stagnating house prices (like Germany). For opposing divergent real estate price developments within the European Monetary Union (EMU), interest rate policy is not the appropriate instrument; whereas "fine tuning" may be possible with the help of asset-based reserve requirements. All financial institutions would be forced to deposit them at the ECB (as a percentage of asset holdings). Reserve rates are free to vary between countries. Therefore, rates should be highest in those countries where appropriate indicators signal a house price bubble.

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    File URL: http://www.elgaronline.com/view/journals/ejeep/4-2/ejeep.2007.02.10.xml
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    Bibliographic Info

    Article provided by Edward Elgar in its journal Intervention. European Journal of Economics and Economic Policies (subtitle initially: Zeitschrift fuer Oekonomie / Journal of Economics).

    Volume (Year): 4 (2007)
    Issue (Month): 2 ()
    Pages: 331-351

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    Handle: RePEc:elg:ejeepi:v:4:y:2007:i:2:p:331-351

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    Web page: http://www.elgaronline.com/ejeep

    Related research

    Keywords: monetary policy; real estate prices; Tobin’s Q; minimum reserve policy; financial stability;

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    Cited by:
    1. Phillip Anthony O’Hara, 2013. "Policies and Institutions for Moderating Deep Recessions, Debt Crises and Financial Instabilities," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 19-49, March.
    2. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis – the case for a Global Keynesian New Deal," MPRA Paper 21175, University Library of Munich, Germany.

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