National macroprudential policies in the Euro Area: flexibility vs. supervision

Rubio, Margarita (2018) National macroprudential policies in the Euro Area: flexibility vs. supervision. Economics Letters, 170 . pp. 55-58. ISSN 0165-1765

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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.

Item Type: Article
RIS ID: https://nottingham-repository.worktribe.com/output/950501
Keywords: Macroprudential policies, LTV, monetary union, coordination, financial stability
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
Identification Number: https://doi.org/10.1016/j.econlet.2018.05.036
Depositing User: Rubio, Margarita
Date Deposited: 29 May 2018 09:51
Last Modified: 04 May 2020 19:49
URI: http://eprints.nottingham.ac.uk/id/eprint/52049

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