Macroprudential Policy in a Monetary Union with Cross-Border Banking

71 Pages Posted: 2 Apr 2019

See all articles by Matthieu Darracq Paries

Matthieu Darracq Paries

European Central Bank (ECB)

Christoffer Kok

European Central Bank (ECB)

Elena Rancoita

European Central Bank (ECB)

Date Written: March 29, 2019

Abstract

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 monetary 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.

Keywords: monetary policy, macroprudential policy, DSGE, banking

JEL Classification: E32, E44, E52, F36, F41

Suggested Citation

Darracq Paries, Matthieu and Kok, Christoffer and Rancoita, Elena, Macroprudential Policy in a Monetary Union with Cross-Border Banking (March 29, 2019). ECB Working Paper No. 2260 (2019); ISBN 978-92-899-3522-7 . Available at SSRN: https://ssrn.com/abstract=3364096

Matthieu Darracq Paries (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+496913446631 (Phone)
+496913447604 (Fax)

Christoffer Kok

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elena Rancoita

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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