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

Rubio, Margarita

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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.

Journal Article Type Article
Publication Date Sep 30, 2018
Journal Economics Letters
Print ISSN 0165-1765
Electronic ISSN 0165-1765
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 170
APA6 Citation Rubio, M. (2018). National macroprudential policies in the Euro Area: flexibility vs. supervision. Economics Letters, 170, https://doi.org/10.1016/j.econlet.2018.05.036
DOI https://doi.org/10.1016/j.econlet.2018.05.036
Keywords Macroprudential policies, LTV, monetary union, coordination, financial stability
Publisher URL https://www.sciencedirect.com/science/article/pii/S0165176518302155
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





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