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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- Oriol Aspachs-Bracons & Pau Rabanal, 2011.
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"Financial Frictions and Inflation Differentials in a Monetary Union,"
CESifo Working Paper Series
3235, CESifo Group Munich.
- Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2014. "Financial Frictions and Inflation Differentials in a Monetary Union," Manchester School, University of Manchester, vol. 82(5), pages 549-595, 09.
- 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.
- 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.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Campbell, Jeffrey R. & Hercowitz, Zvi, 2009.
"Welfare implications of the transition to high household debt,"
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Elsevier, vol. 56(1), pages 1-16, January.
- Jeffrey R. Campbell & Zvi Hercowitz, 2006. "Welfare implications of the transition to high household debt," Working Paper Series WP-06-27, Federal Reserve Bank of Chicago.
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