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Global banking and the conduct of macroprudential policy in a monetary union

Listed author(s):
  • Jean-Christophe Poutineau

    (CREM - Centre de Recherche en Economie et Management - UNICAEN - Université Caen Normandie - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique)

  • Gauthier Vermandel

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

This paper questions the role of cross-border lending in the definition of national macroprudential policies in the European Monetary Union. We build and estimate a two-country DSGE model with corporate and interbank cross-border loans, Core-Periphery diverging financial cycles and a national implementation of coordinated macroprudential measures based on Countercyclical Capital Buffers. We get three main results. First, targeting a national credit-to-GDP ratio should be favored to federal averages as this rule induces better stabilizing performances in front of important divergences in credit cycles between core and peripheral countries. Second, policies reacting to the evolution of national credit supply should be favored as the transmission channel of macroprudential policy directly impacts the marginal cost of loan production and, by so, financial intermediaries. Third, the interest of lifting up macroprudential policymaking to the supra-national level remains questionable for admissible value of international lending between Eurozone countries. Indeed, national capital buffers reacting to the union-wide loan-to-GDP ratio only lead to the same stabilization results than the one obtained under the national reaction if cross-border lending reaches 45%. However, even if cross-border linkages are high enough to justify the implementation of a federal adjusted solution, the reaction to national lending conditions remains remarkably optimal.

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File URL: https://halshs.archives-ouvertes.fr/halshs-01525396/document
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Paper provided by HAL in its series Post-Print with number halshs-01525396.

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Date of creation: 2017
Publication status: Published in Journal of Macroeconomics, Elsevier, 2017, <10.1016/j.jmacro.2017.04.010>
Handle: RePEc:hal:journl:halshs-01525396
DOI: 10.1016/j.jmacro.2017.04.010
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01525396
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