Macroprudential policy and imbalances in the euro area

Michal Brzoza-Brzezina, Marcin Kolasa and Krzysztof Makarski

No 138, NBP Working Papers from Narodowy Bank Polski

Abstract: Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a twoeconomy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be set individually for each region. Area-wide policy is almost ineffective in this respect.

Keywords: euro-area imbalances; macroprudential policy; DSGE with banking sector (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 (search for similar items in EconPapers)
Pages: 38
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Macroprudential policy and imbalances in the euro area (2015)
Working Paper: Macroprudential policy instruments and economic imbalances in the euro area (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:138

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