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 interaction of non-standard monetary measures and macroprudential policy in a monetary union by developing a two-region model of the euro area (EA) and simulating the Eurosystem’s Asset Purchase Programme (APP). In each region some households are subject to a borrowing constraint, and the local real estate is used as collateral. Our results are as follows. First, in one region a large loan-to-value (LTV) ratio can amplify the positive effect of the union-wide APP on domestic households’ borrowing. Second, during the APP implementation, overly optimistic (i.e., non-fundamental) expectations about local real estate prices would further augment households’ borrowing in that region. Third, region-specific macroprudential measures that stabilize private debt can counteract the effects of the optimistic expectations and favor a macroeconomic expansion driven only by fundamentals, i.e., the APP, without the need to scale back the latter. Fourth, both the APP and the region-specific macroprudential policy bring about a welfare improvement.

Keywords: Monetary union, Open-economy macroeconomics, Non-standard monetary policy, Zero lower bound, Macroprudential policy.

JEL classifications: E43, E52, E58.

Published version:

- Journal of International Money and Finance, 2018, 88, pp. Pages 25–53.

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).