Financial market heterogeneity: Implications for the EMU

Johannes Gareis () and Eric Mayer

No 90, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: This paper evaluates business cycle and welfare effects of cross-country mortgage market heterogeneity for a monetary union. By employing a calibrated two-country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in cross-country institutional characteristics of mortgage markets, such as the LTV ratio, is likely to be an important driver of an asymmetric development in housing markets and real economic activity of member states. Our welfare analysis suggests that the welfare of the home country where the reform is implemented increases substantially. In contrast, the rest of the EMU's welfare falls due to spillover effects with magnitude depending on the size of the home country.

Keywords: housing; LTV ratio; monetary union; cross-country heterogeneity (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wuewep:90

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