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Coordinating macroprudential policies within the Euro area: The case of Spain

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  • Rubio, Margarita
  • Carrasco-Gallego, José A.

Abstract

In the aftermath of the global financial crisis, there is consensus on the need for macroprudential policies to promote financial stability. However, the optimal way to implement such policies in the Euro area is a question open to debate, given that countries have to coordinate. In this paper, we propose a two-country, two-sector monetary union dynamic stochastic general equilibrium model (DSGE) with housing to analyze the optimal implementation of macroprudential policies in the Euro area. Currently, Spain is the only country within the EU that has not established a macroprudential regulator. We use Spain as a natural experiment to study the effects of a lack of coordination in the use of macroprudential policies in the European Monetary Union (EMU). We focus on a particular macroprudential policy, a rule regarding the loan-to-value ratio, which responds countercyclically to credit booms. We find that such a policy is welfare enhancing for the Euro area. Nevertheless, if one country does not implement the policy, but the rest of the EMU does, as in the current situation with Spain, this country still yields some benefits as a result of its partners' implementation of the policy because it gains from a more stable financial system without incurring any output costs. However, if all Euro countries actively implement the policy, the welfare gains for all of them are larger.

Suggested Citation

  • Rubio, Margarita & Carrasco-Gallego, José A., 2016. "Coordinating macroprudential policies within the Euro area: The case of Spain," Economic Modelling, Elsevier, vol. 59(C), pages 570-582.
  • Handle: RePEc:eee:ecmode:v:59:y:2016:i:c:p:570-582
    DOI: 10.1016/j.econmod.2016.06.006
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    Cited by:

    1. Ag�nor, Pierre-Richard & Gambacorta, Leonardo & Kharroubi, Enisse & Lombardo, Giovanni & Pereira da Silva, Luiz A., 2017. "The International Dimensions of Macroprudential Policies," CEPR Discussion Papers 12108, C.E.P.R. Discussion Papers.
    2. Yassine Bakkar & Olivier De Jonghe & Amine Tarazi, 2017. "Does banks' systemic importance affect their capital structure and balance sheet adjustment processes?," Working Papers hal-01636253, HAL.
    3. Gross, Marco & Población, Javier, 2017. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Economic Modelling, Elsevier, vol. 61(C), pages 510-528.
    4. Pierre-Richard Agénor & Pengfei Jia, 2017. "Macroprudential Policy Coordination in a Currency Union'," Centre for Growth and Business Cycle Research Discussion Paper Series 235, Economics, The Univeristy of Manchester.
    5. Yassine Bakkar & Olivier De Jonghe & Amine Tarazi, 2017. "Does banks' systemic importance affect their capital structure adjustment process?," Working Papers hal-01546995, HAL.
    6. Torój, Andrzej, 2017. "Managing external macroeconomic imbalances in the EU: the welfare cost of scoreboard-based constraints," Economic Modelling, Elsevier, vol. 61(C), pages 293-311.

    More about this item

    Keywords

    Macroprudential policy; Coordination; Loan-to-value ratio; Welfare; Euro area; Spain;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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