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

Rubio, Margarita

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.

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

• Journal Article Type: Article
• Acceptance Date: May 27, 2018
• Online Publication Date: Jun 4, 2018
• Publication Date: Sep 30, 2018
• Deposit Date: May 29, 2018
• Publicly Available Date: Dec 5, 2019
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Electronic ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 170
• DOI: https://doi.org/10.1016/j.econlet.2018.05.036
• Keywords: Macroprudential policies, LTV, monetary union, coordination, financial stability
• Public URL: https://nottingham-repository.worktribe.com/output/950501
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165176518302155