Macroprudential policy in a monetary union with cross-border banking
Matthieu Darracq Paries (),
Christoffer Kok and
No 2260, Working Paper Series from European Central Bank
We analyse the interaction between monetary and macroprudential policies in the euro area by means of a two-country DSGE model with ﬁnancial frictions and cross-border spillover eﬀects. We calibrate the model for the four largest euro area countries (i.e. Germany, France, Italy, and Spain), with particular attention to the calibration of cross-country ﬁnancial and trade linkages and country speciﬁc banking sector characteristics. We ﬁnd that countercyclical macroprudential interventions are supportive of mon-etary policy conduct through the cycle. This complementarity is signiﬁcantly reinforced when there are asymmetric ﬁnancial cycles across the monetary union, which provides a case for targeted country-speciﬁc macroprudential policies to help alleviate the burden on monetary policy. At the same time, our ﬁndings point to the importance of taking into account cross-border spillover eﬀects of macroprudential measures within the Monetary Union. JEL Classification: E32, E44, E52, F36, F41
Keywords: banking; DSGE; macroprudential policy; monetary policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192260
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