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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)

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.

Suggested Citation

  • Michael Holz, 2007. "Asset-Based Reserve Requirements: A New Monetary Policy Instrument for Targeting Diverging Real Estate Prices in the Euro Area," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 4(2), pages 331-351.
    • Handle: RePEc:elg:ejeepi:v:4:y:2007:i:2:p:331-351
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    Citations

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    Cited by:

    1. Daniel Detzer, 2012. "New instruments for banking regulation and monetary policy after the crisis," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 233-254.
    2. Eckhard Hein & Achim Truger, 2012. "Finance-dominated capitalism in crisis—the case for a global Keynesian New Deal," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(2), pages 187-213.
    3. 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.
    4. Maurer Rainer, 2023. "The Divergence of Price Levels in the European Union," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(6), pages 342-346, December.
    5. Rainer Maurer, 2010. "Die Verschuldungskrise der Europäischen Währungsunion: fiskalische Disziplinlosigkeit oder Konstruktionsfehler?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 79(4), pages 85-102.
    6. Maurer, Rainer, 2022. "Price levels in the European Monetary Union: Even tradables follow independent random walks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

    More about this item

    Keywords

    monetary policy; real estate prices; Tobin’s Q; minimum reserve policy; financial stability;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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