Lorenzo Burlon

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"Non-standard monetary policy, asset prices and macroprudential policy in a monetary union"

Joint with Andrea Gerali, Alessandro Notarpietro, and Massimiliano Pisani.

First version: November 2016.

Abstract This paper evaluates the macroeconomic and financial effects of the Eurosystem's Asset Purchase Programme (APP) and its interaction with a member country's macroprudential policy. We assume that some households in a euro-area (EA) country are subject to a borrowing constraint, and that their local real estate acts as the collateral. In order to highlight the interaction between the APP and region-specific macroprudential policies, we simulate a situation in which, as the APP is carried out, households in one EA region develop overly optimistic expectations about local real estate prices. We report four main findings. First, a relatively large loan-to-value (LTV) ratio in one region can greatly amplify the expansionary effect of the union-wide non-standard monetary policy measures on domestic households' borrowing. Second, while the APP is being implemented, an increase in households' borrowing in one region can be further magnified by the combination of a high LTV ratio and overly optimistic expectations. Third, region-specific macroprudential measures can stabilize private sector borrowing with limited negative effects on economic activity. Fourth, our results hold also in the case of area-wide overly optimistic expectations.

Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound.

JEL classifications: E43, E52, E58.

Working paper versions:

Temi di discussione (Working papers) 1089, Bank of Italy (2016).


- Workshop on "Macroeconomic Effects of Policy Announcements," Central Bank of Ireland, Dublin, October 2017.
- Seminar at the Banco de España, June 2017.
- Workshop on "Unconventional Monetary Policy: Effectiveness and Risks," Bank of Italy, October 2016 (Massimiliano Pisani).
- 2016 Central Bank Macroeconomic Modeling Workshop, Armenia, September 2016 (Massimiliano Pisani).
- 12th Dynare Conference in Rome, Bank of Italy, September 2016 (Massimiliano Pisani).
- ESCB MPC Meeting, Frankfurt, June 2016 (Massimiliano Pisani).
- IV Internal Workshop of the Bank of Italy's Economic Outlook and Monetary Policy Directorate, Bank of Italy, March 2016 (Massimiliano Pisani).