The role of macro-prudential policies in the prevention and correction of asset imbalances in the Euro Area

Margarita Rubio, Assistant Professor at the School of Economics and CFCM member has written a briefing paper for the European Parliament on “The role of macro-prudential policies in the prevention and correction of asset imbalances in the Euro Area.” The objective is to provide a substantiated analysis to the Members of the European Parliament in advance of the planned regular Economic Dialogue with the President of the Eurogroup in Spring 2017 in the ECON Committee (which has selected the topic). Dr. Rubio's main conclusions are that in a monetary union, the call for macroprudential policies to correct both macroeconomic and financial imbalances is very strong because monetary policy is constrained. However, given cross-country heterogeneity in EMU, macroprudential policies per se do not guarantee financial stability if they are not strong enough or if they do not target country-specific problems. Furthermore, in light of past experiences, it is important to have a macroprudential authority whose reputation and credibility is not dependent on existing institutions.

The paper can be found here.