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Why macroprudential policy matters in a monetary union

Author

Listed:
  • Claudia M. Buch
  • Manuel Buchholz
  • Katharina Knoll
  • Benjamin Weigert

Abstract

This article discusses the role of macroprudential policy in a monetary union. It focuses on three main points. First, macroprudential policy has the objective of mitigating financial stability risks by preventing the build-up of vulnerabilities and increasing resilience. Second, many vulnerabilities reflect country-specific preferences and interact with national institutions. Monitoring and addressing financial stability risks at the national level are thus important. This holds particularly in a monetary union with economies that are highly integrated financially, but heterogeneous along important dimensions that can significantly affect financial stability risks. Third, cross-border externalities and spillovers call for the coordination of national macroprudential policies at the supranational level. This includes mechanisms to account for a potential inaction bias. Methodologically, the article draws on existing literature adding new empirical evidence on financial integration and adjustment to spillovers in the euro area.

Suggested Citation

  • Claudia M. Buch & Manuel Buchholz & Katharina Knoll & Benjamin Weigert, 2021. "Why macroprudential policy matters in a monetary union," Oxford Economic Papers, Oxford University Press, vol. 73(4), pages 1604-1633.
    • Handle: RePEc:oup:oxecpp:v:73:y:2021:i:4:p:1604-1633.
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    File URL: http://hdl.handle.net/10.1093/oep/gpab036
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    Cited by:

    1. Lara Coulier & Selien De Schryder, 2022. "Assessing the Effects of Borrower-Based Macroprudential Policy on Credit in the EU Using Intensity-Based Indices," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 22/1044, Ghent University, Faculty of Economics and Business Administration.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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