Working Paper: CEPR ID: DP10776
Authors: Philip R. Lane
Abstract: This paper examines the cyclical behaviour of country-level macro-financial variables under EMU. Monetary union strengthened the covariation pattern between the output cycle and the financial cycle, while macro-financial policies at national and area-wide levels were insufficiently counter-cyclical during the 2003-2007 boom period. We critically examine the policy reform agenda required to improve macro-financial stability.
Keywords: EMU; financial stability; macroprudential
JEL Codes: E50; F30; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Membership in the euro area (F36) | Amplified procyclical behavior in inflation (E31) |
| Membership in the euro area (F36) | Increased net international portfolio flows (F32) |
| Faster output growth in member countries (O57) | Higher inflation rates (E31) |
| Cyclical behavior of macrofinancial variables (E32) | More intense under EMU (F36) |
| Inability to adjust nominal exchange rates (F31) | Constrained external adjustment processes during crises (F32) |
| Access to Eurosystem liquidity (E52) | Gentler adjustment process for certain member countries (F32) |
| Membership in the euro area (F36) | Destabilizing patterns in macrofinancial stability (F65) |