Financial market heterogeneity: Implications for the EMU
This paper evaluates business cycle and welfare effects of cross-country mortgage market heterogeneity for a monetary union. By employing a calibrated two-country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in cross-country institutional characteristics of mortgage markets, such as the LTV ratio, is likely to be an important driver of an asymmetric development in housing markets and real economic activity of member states. Our welfare analysis suggests that the welfare of the home country where the reform is implemented increases substantially. In contrast, the rest of the EMU's welfare falls due to spillover effects with magnitude depending on the size of the home country.
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- Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2013.
"Financial Frictions and Inflation Differentials in a Monetary Union,"
Munich Reprints in Economics
19365, University of Munich, Department of Economics.
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"The Effects of Housing Prices and Monetary Policy in a Currency Union,"
IMF Working Papers
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- Campbell, Jeffrey R. & Hercowitz, Zvi, 2009.
"Welfare implications of the transition to high household debt,"
Journal of Monetary Economics,
Elsevier, vol. 56(1), pages 1-16, January.
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- Darracq Pariès, Matthieu & Notarpietro, Alessandro, 2008. "Monetary policy and housing prices in an estimated DSGE for the US and the euro area," Working Paper Series 0972, European Central Bank.
- Francesco Drudi & Petra Köhler-Ulbrich & Marco Protopapa & Jiri Slacalek & Christoffer Kok Sørensen & Guido Wolswijk & Ramón Gómez Salvador & Ruth Magono & Nico Valckx & Elmar Stöss & Gerbert Hebbink , 2009. "Housing Finance in the Euro Area," Occasional Paper Series 101, European Central Bank.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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