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Macroprudential policy implementation in a heterogeneous monetary union

Rubio, Margarita

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Abstract

In this article, I develop a two-country new Keynesian general equilibrium model with housing and collateral constraints to explore how macroprudential policies should be conducted in a heterogeneous monetary union. I consider several types of cross-country heterogeneity: asymmetric shocks, different leveraged countries, and mortgage contract heterogeneity (fixed and variable rates). As a macroprudential tool, I propose a Taylor-type rule for the loan-to-value ratio, which responds to deviations in output and house prices. This policy can be applied at a national or union level. Results show that structural asymmetries matter for the implementation of macroprudential policies, especially when the heterogeneity delivers differences in economic and financial volatilities. It seems then adequate to delegate macroprudential policies to national authorities. However, a supranational institution could also help stabilize the whole union when there are asymmetric shocks.

Citation

Rubio, M. (2024). Macroprudential policy implementation in a heterogeneous monetary union. Oxford Economic Papers, 76(2), https://doi.org/10.1093/oep/gpad012

Journal Article Type Article
Acceptance Date Apr 6, 2023
Online Publication Date Apr 21, 2023
Publication Date 2024-04
Deposit Date Apr 7, 2023
Publicly Available Date Apr 22, 2025
Journal Oxford Economic Papers
Print ISSN 0030-7653
Electronic ISSN 1464-3812
Publisher Oxford University Press
Peer Reviewed Peer Reviewed
Volume 76
Issue 2
DOI https://doi.org/10.1093/oep/gpad012
Public URL https://nottingham-repository.worktribe.com/output/19294209
Publisher URL https://academic.oup.com/oep/article/76/2/351/7136009

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