Why macroprudential policy matters in a monetary union
Claudia Buch,
Manuel Buchholz,
Katharina Knoll and
Benjamin Weigert
Oxford Economic Papers, 2021, vol. 73, issue 4, 1604-1633
Abstract:
This article discusses the role of macroprudential policy in a monetary union. It focuses on three main points. First, macroprudential policy has the objective of mitigating financial stability risks by preventing the build-up of vulnerabilities and increasing resilience. Second, many vulnerabilities reflect country-specific preferences and interact with national institutions. Monitoring and addressing financial stability risks at the national level are thus important. This holds particularly in a monetary union with economies that are highly integrated financially, but heterogeneous along important dimensions that can significantly affect financial stability risks. Third, cross-border externalities and spillovers call for the coordination of national macroprudential policies at the supranational level. This includes mechanisms to account for a potential inaction bias. Methodologically, the article draws on existing literature adding new empirical evidence on financial integration and adjustment to spillovers in the euro area.
JEL-codes: E58 E61 F45 (search for similar items in EconPapers)
Date: 2021
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