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The influence of real estate on finance and the whole economy has captured significant attention, especially since the aftermath of the Great Recession, because of the potential of this sector to destabilize markets. This paper explores the other way around: housing markets’ capacity to stabilize the economy through different macroprudential policies facing several types of shocks to achieve financial stability as a driver of sustainability. Specifically, a dynamic stochastic general equilibrium model is used to evaluate the effectiveness to stabilize the economy of different macroprudential tools based on the loan-to-value ratio for real estate, on the countercyclical capital buffer for the financial sector and a combination of both tools, facing a housing price shock, a technology shock and a financial shock. The model presents three types of agents (borrowers, entrepreneurs and banks) in an economy with a real estate market, a financial sector, a labor market and a production sector. The government can use different macroprudential policies to stabilize the economy, leaning against the wind of several shocks to achieve economic and financial sustainability. The assessment of the effectiveness of each policy shows that, in the case of a housing sector shock and a technology shock, the more effective policy is the one based on a countercyclical rule on the loan-to-value ratio for the real estate sector as a macroprudential tool. Furthermore, with a house price shock, if the macroprudential authority applies a macroprudential policy based on the countercyclical capital buffer, the shock may be exacerbated. Additionally, when there is a financial shock, the macroprudential authority may face a trade-off between several macro-financial policies depending on its objective. Therefore, it is not recommendable to automatically apply a macroprudential policy without a meticulous analysis of the nature of the shock that the economy is experimenting with and how different policies can stabilize or destabilize the different markets and, therefore, reach higher or lower sustainability.
José Carrasco-Gallego. Real Estate, Economic Stability and the New Macro-Financial Policies. Sustainability 2020, 13, 236 .
AMA StyleJosé Carrasco-Gallego. Real Estate, Economic Stability and the New Macro-Financial Policies. Sustainability. 2020; 13 (1):236.
Chicago/Turabian StyleJosé Carrasco-Gallego. 2020. "Real Estate, Economic Stability and the New Macro-Financial Policies." Sustainability 13, no. 1: 236.
José A. Carrasco-Gallego; Margarita Rubio; Paul Mizen; Philip Turner. The Macroprudential Countercyclical Capital Buffer in Basel III. Macroprudential Policy and Practice 2018, 108 -134.
AMA StyleJosé A. Carrasco-Gallego, Margarita Rubio, Paul Mizen, Philip Turner. The Macroprudential Countercyclical Capital Buffer in Basel III. Macroprudential Policy and Practice. 2018; ():108-134.
Chicago/Turabian StyleJosé A. Carrasco-Gallego; Margarita Rubio; Paul Mizen; Philip Turner. 2018. "The Macroprudential Countercyclical Capital Buffer in Basel III." Macroprudential Policy and Practice , no. : 108-134.
José Carrasco-Gallego. Introducing economics to millennials. International Review of Economics Education 2017, 26, 19 -29.
AMA StyleJosé Carrasco-Gallego. Introducing economics to millennials. International Review of Economics Education. 2017; 26 ():19-29.
Chicago/Turabian StyleJosé Carrasco-Gallego. 2017. "Introducing economics to millennials." International Review of Economics Education 26, no. : 19-29.
In this paper, we propose a two-country, two sector monetary union DSGE model with housing. One of the countries is calibrated to represent the Spanish economy while the other one is the rest of the European monetary union. First, we illustrate how looser credit conditions coming from the Euro area, together with increases in housing demand, lead to an increase in house prices and credit in Spain. Then, we analyze to what extent, macroprudential policies could have avoided the excess in credit that triggered the financial crisis in Spain. We find that a countercyclical loan-to-value (LTV) rule that mainly responds to house prices would have mitigated the credit boom in Spain. These results can also be applied to other countries facing similar problems in the housing sector and thinking about implementing macroprudential policies.
Margarita Rubio; José A. Carrasco-Gallego. SPAIN AND THE CRISIS: HOUSING PRICES, CREDIT AND MACROPRUDENTIAL POLICIES. The Singapore Economic Review 2017, 62, 109 -133.
AMA StyleMargarita Rubio, José A. Carrasco-Gallego. SPAIN AND THE CRISIS: HOUSING PRICES, CREDIT AND MACROPRUDENTIAL POLICIES. The Singapore Economic Review. 2017; 62 (1):109-133.
Chicago/Turabian StyleMargarita Rubio; José A. Carrasco-Gallego. 2017. "SPAIN AND THE CRISIS: HOUSING PRICES, CREDIT AND MACROPRUDENTIAL POLICIES." The Singapore Economic Review 62, no. 1: 109-133.
In this paper, we take as a baseline a dynamic stochastic general equilibrium (DSGE) model, which features a housing market, borrowers, savers and banks, in order to evaluate the welfare and macroeconomic effects of the new fixed capital requirements in the Basel accords. Our results show that the higher capital requirements imposed by Basel I, II and III decrease both the quantity of borrowing and its variability, producing distributional welfare effects among agents: savers are better off, but borrowers and banks are worse off. Then, we propose a macroprudential rule for the countercyclical capital buffer of Basel III in which capital requirements respond to credit growth, output and housing prices. We find that the optimal implementation of Basel III is countercyclical for borrowers and banks, the agents directly affected by capital requirements, while procyclical for savers. From a normative perspective, we see that this macroprudential rule for Basel III delivers higher welfare for the society than a situation with no regulation. Keywords: Basel I, Basel II, Basel III, banking regulation, welfare, banking supervision, macroprudential, capital requirement ratio, credit, countercyclical capital buffer.
Margarita Rubio; José A. Carrasco-Gallego. Bank Capital Requirements and Collateralised Lending Markets. The Manchester School 2017, 85, 79 -103.
AMA StyleMargarita Rubio, José A. Carrasco-Gallego. Bank Capital Requirements and Collateralised Lending Markets. The Manchester School. 2017; 85 ():79-103.
Chicago/Turabian StyleMargarita Rubio; José A. Carrasco-Gallego. 2017. "Bank Capital Requirements and Collateralised Lending Markets." The Manchester School 85, no. : 79-103.
In the aftermath of the global financial crisis, there is consensus on the need for macroprudential policies to promote financial stability. However, the optimal way to implement such policies in the Euro area is a question open to debate, given that countries have to coordinate. In this paper, we propose a two-country, two-sector monetary union dynamic stochastic general equilibrium model (DSGE) with housing to analyze the optimal implementation of macroprudential policies in the Euro area. Currently, Spain is the only country within the EU that has not established a macroprudential regulator. We use Spain as a natural experiment to study the effects of a lack of coordination in the use of macroprudential policies in the European Monetary Union (EMU). We focus on a particular macroprudential policy, a rule regarding the loan-to-value ratio, which responds countercyclically to credit booms. We find that such a policy is welfare enhancing for the Euro area. Nevertheless, if one country does not implement the policy, but the rest of the EMU does, as in the current situation with Spain, this country still yields some benefits as a result of its partners' implementation of the policy because it gains from a more stable financial system without incurring any output costs. However, if all Euro countries actively implement the policy, the welfare gains for all of them are larger.
Margarita Rubio; José A. Carrasco-Gallego. Coordinating macroprudential policies within the Euro area: The case of Spain. Economic Modelling 2016, 59, 570 -582.
AMA StyleMargarita Rubio, José A. Carrasco-Gallego. Coordinating macroprudential policies within the Euro area: The case of Spain. Economic Modelling. 2016; 59 ():570-582.
Chicago/Turabian StyleMargarita Rubio; José A. Carrasco-Gallego. 2016. "Coordinating macroprudential policies within the Euro area: The case of Spain." Economic Modelling 59, no. : 570-582.
The aim of this paper is to study the interaction between Basel I, II and III regulations with monetary policy. In order to do that, we use a dynamic stochastic general equilibrium (DSGE) model with a housing market, banks, borrowers, and savers. Results show that monetary policy needs to be more aggressive when the capital requirement ratio (CRR) increases because it is less effective in this case. However, this policy combination brings a more stable economic and financial system. We also analyze the optimal way to implement the countercyclical capital buffer stated by Basel III. We propose that the CRR follows a rule that responds to deviations of credit from its steady state. We find that the optimal implementation of this macroprudential rule together with monetary policy brings extra financial stability with respect to Basel I and II.
Margarita Rubio; José A. Carrasco-Gallego. The new financial regulation in Basel III and monetary policy: A macroprudential approach. Journal of Financial Stability 2016, 26, 294 -305.
AMA StyleMargarita Rubio, José A. Carrasco-Gallego. The new financial regulation in Basel III and monetary policy: A macroprudential approach. Journal of Financial Stability. 2016; 26 ():294-305.
Chicago/Turabian StyleMargarita Rubio; José A. Carrasco-Gallego. 2016. "The new financial regulation in Basel III and monetary policy: A macroprudential approach." Journal of Financial Stability 26, no. : 294-305.
Purpose This study aims to build a two-country monetary union dynamic stochastic general equilibrium (DSGE) model with housing to assess how different shocks contributed to the increase in housing prices and credit in the European Economic and Monetary Union. One of the countries is calibrated to represent the core group in the euro area, while the other one corresponds to the periphery. Design/methodology/approach In this paper, the authors explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, they analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to both economies. Findings The authors find that a combination of an increase in liquidity in the euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, contributed to an increase in house prices in the euro area and a stronger credit growth in the peripheral economies. Originality/value This paper represents the theoretical counterpart to empirical studies that show, through macroeconometric models, the interrelation between liquidity and other shocks with house prices. Using a DSGE model with housing, the authors disentangle the mechanisms behind these empirical findings.
Margarita Rubio; José A. Carrasco-Gallego. Liquidity, interest rates and house prices in the euro area: a DSGE analysis. Journal of European Real Estate Research 2016, 9, 4 -25.
AMA StyleMargarita Rubio, José A. Carrasco-Gallego. Liquidity, interest rates and house prices in the euro area: a DSGE analysis. Journal of European Real Estate Research. 2016; 9 (1):4-25.
Chicago/Turabian StyleMargarita Rubio; José A. Carrasco-Gallego. 2016. "Liquidity, interest rates and house prices in the euro area: a DSGE analysis." Journal of European Real Estate Research 9, no. 1: 4-25.
This paper studies the interaction between macroprudential and monetary policies, using a DSGE model with a housing market and collateral constraints. Monetary policy follows a standard Taylor rule for the interest rate. The macroprudential authority implements a Taylor-type rule for the loan-to-value, ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest-rate rule to respond to house prices increases welfare, since it enhances financial stability. However, for the optimal policy mix, when both policies act together, monetary policy should ensure price stability while the macroprudential authority should safeguard financial stability
Margarita Rubio; José Carrasco-Gallego. Macroprudential and Monetary Policy Rules: a Welfare Analysis. The Manchester School 2015, 83, 127 -152.
AMA StyleMargarita Rubio, José Carrasco-Gallego. Macroprudential and Monetary Policy Rules: a Welfare Analysis. The Manchester School. 2015; 83 (2):127-152.
Chicago/Turabian StyleMargarita Rubio; José Carrasco-Gallego. 2015. "Macroprudential and Monetary Policy Rules: a Welfare Analysis." The Manchester School 83, no. 2: 127-152.
Margarita Rubio; José Carrasco-Gallego. Macroprudential and monetary policies: Implications for financial stability and welfare. Journal of Banking & Finance 2014, 49, 326 -336.
AMA StyleMargarita Rubio, José Carrasco-Gallego. Macroprudential and monetary policies: Implications for financial stability and welfare. Journal of Banking & Finance. 2014; 49 ():326-336.
Chicago/Turabian StyleMargarita Rubio; José Carrasco-Gallego. 2014. "Macroprudential and monetary policies: Implications for financial stability and welfare." Journal of Banking & Finance 49, no. : 326-336.
The recent financial crisis has raised the discussion among policy makers and researchers on the need of macroprudential policies to avoid systemic risks in financial markets. However, these new measures need to be combined with the traditional ones, namely monetary policy. The aim of this paper is to study how the interaction of macroprudential and monetary policies affect the economy. We take as a baseline a dynamic stochastic general equilibrium (DSGE) model which features a housing market in order to evaluate the performance of a rule on the loan-to-value ratio (LTV) interacting with the traditional monetary policy conducted by central banks. We find that, introducing the macroprudential rule mitigates the effects of booms on the economy by restricting credit. From a normative perspective, results show that the combination of monetary policy and the macroprudential rule is unambiguously welfare enhancing, especially when monetary policy does not respond to output and house prices and only to inflation.
José A Carrasco-Gallego; Margarita Rubio. Macroprudential Measures, Housing Markets and Monetary Policy. 2013, 1 .
AMA StyleJosé A Carrasco-Gallego, Margarita Rubio. Macroprudential Measures, Housing Markets and Monetary Policy. . 2013; ():1.
Chicago/Turabian StyleJosé A Carrasco-Gallego; Margarita Rubio. 2013. "Macroprudential Measures, Housing Markets and Monetary Policy." , no. : 1.
José A. Carrasco‐Gallego. The Marshall Plan and the Spanish postwar economy: a welfare loss analysis1. The Economic History Review 2011, 65, 91 -119.
AMA StyleJosé A. Carrasco‐Gallego. The Marshall Plan and the Spanish postwar economy: a welfare loss analysis1. The Economic History Review. 2011; 65 (1):91-119.
Chicago/Turabian StyleJosé A. Carrasco‐Gallego. 2011. "The Marshall Plan and the Spanish postwar economy: a welfare loss analysis1." The Economic History Review 65, no. 1: 91-119.