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National macroprudential policies in the euro area: Flexibility vs. supervision

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  • Rubio, Margarita

Abstract

In this paper, I shed some light on a much discussed topic in the policy debate: Should national macroprudential policies be supervised by a supranational entity in a monetary union? To do so, I develop a two-country DSGE monetary union model, which I calibrate to the core and periphery regions of the euro area. Monetary policy is set by the ECB, while macroprudential policies, based on the loan-to-value ratio (LTV), are set nationally. Results show that, given that the economy in the periphery is more leveraged, macroprudential policies need to be more aggressive in that region. I also find that, when LTV policies are set independently in a non-coordinated manner by each authority, albeit being beneficial for both countries and for the union as a whole, welfare gains are not as high as when they are coordinated and supervised by a separate body.

Suggested Citation

  • Rubio, Margarita, 2018. "National macroprudential policies in the euro area: Flexibility vs. supervision," Economics Letters, Elsevier, vol. 170(C), pages 55-58.
  • Handle: RePEc:eee:ecolet:v:170:y:2018:i:c:p:55-58
    DOI: 10.1016/j.econlet.2018.05.036
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    References listed on IDEAS

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    1. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    2. Dominic Quint & Pau Rabanal, 2014. "Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 169-236, June.
    3. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
    4. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    5. Rubio, Margarita, 2014. "Housing-market heterogeneity in a monetary union," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 163-184.
    6. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
    7. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," American Economic Review, American Economic Association, vol. 91(2), pages 258-262, May.
    8. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Política macroprudencial en Europa y el caso de España
      by Javier Ferri in Nada Es Gratis on 2019-04-30 05:07:23

    More about this item

    Keywords

    Macroprudential policies; LTV; Monetary union; Coordination; Financial stability;

    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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