Margarita Rubio contributes to two-day conference organised by European Central Bank

CFCM Fellow, Margarita Rubio, contributes to a two-day conference organised by the European Central Bank on "Heterogeneity in currency areas and macroeconomic policies" on 28-29 November 2013. This conference, which includes contributions from Atif Mian, Jordi Galí, Frank Smets, Emmanuel Farhi, Luigi Guiso, Thomas Philippon, Giancarlo Corsetti and many others, will address important monetary policy and macroprudential concerns.

Margarita's paper will highlight the conduct of macroprudential policies in a monetary union with heterogeneous members, both from a positive and a normative perspective. It develops a two-country new Keynesian general equilibrium model with housing and collateral constraints to explore this issue and considers several types of cross-country heterogeneity: asymmetric shocks, different proportion of borrowers, different loan-to-value ratios, and mortgage contract heterogeneity. As a macroprudential tool, it proposes a 'Taylor-type rule' for the loan-to-value ratio which responds to deviations in output and house prices. This policy can be implemented at a national or union level. Results show that the welfare-maximizing rule responds relatively more aggressively to house prices, especially in the case of the mortgage contract asymmetry. However, depending on the source of heterogeneity, the rule should be implemented at a national or a union level.