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Could the boom-bust in the eurozone periphery have been prevented?

Marcin Bielecki (), Michal Brzoza-Brzezina, Marcin Kolasa () and Krzysztof Makarski ()

No 263, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: Boom-bust cycles in the eurozone periphery almost toppled the common currency and recent experience suggests that they may return soon. We check whether monetary or macroprudential policy could have prevented the periphery’s violent boom and bust after the euro adoption. We estimate a DSGE model for the two euro area regions, core and periphery, and conduct a series of historical counterfactual experiments in which monetary and macroprudential policy follow optimized rules that use area-wide welfare as the criterion. We show that common monetary policy could have better stabilized output in both regions, but not the housing market or the periphery’s trade balance.In contrast, region-specific macroprudential policy could have substantially smoothed the credit cycle in the periphery and reduced the build-up of external imbalances.

Keywords: euro-area imbalances; monetary policy; macroprudential policy; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-opm
Date: 2017
Note: We would like to thank the participants of the NBP-NBU conference in Kyiv, Computing in Economics and Finance conference in Bordeaux, Dynare conference in Rome, European Economic Association Annual Meeting in Geneva, NBP-Deutsche Bundesbank Workshop in Kraków and Schumpeter Seminar at the Humboldt University in Berlin for useful comments.
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Related works:
Journal Article: Could the Boom‐Bust in the Eurozone Periphery Have Been Prevented? (2019) Downloads
Working Paper: Could the boom-bust in the eurozone periphery have been prevented? (2017) Downloads
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