Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154022
Authors: 
Brzoza-Brzezina, Michał
Kolasa, Marcin
Makarski, Krzysztof
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1589
Abstract: 
Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy tools - applied in a countercyclical fashion as known from the DSGE literature to the peripheral countries - could contribute to providing more macroeconomic stability in this region. To this end we build a two-economy macrofinancial DSGE model and simulate the effects of macroprudential tools under the assumption of asymmetric shocks hitting the core and the periphery. We find that a countercyclical application of macroprudential tools 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.
Subjects: 
DSGE with banking sector
euro-area imbalances
Macroprudential policy
JEL: 
E32
E44
E58
Document Type: 
Working Paper

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