MEDSEA-FIN: A DSGE model of the Maltese economy with housing and financial frictions

Arbeitspapier

We extend the Central Bank of Malta's core DSGE model - MEDSEA - with housing and financial frictions to capture the important theoretical links betweeen house prices, credit and consumption. The model features a rich set of features that are inherent to small open economies in a monetary union. We add a borrowing constraint on a subset of households that is contigent on the value of housing wealth and a maximum loan-to-value (LTV) ratio. We also impose capital requirements on the financial intermediary through a minimum capital-to-assets ratio (CAR) constraint. These two requirements form the basis of a typical macroprudential regime in a developed economy. We show how the macroprudential authority can dampen the rise in credit and consumption during a credit boom by using these two policy tools to 'lean against the wind'. MEDSEA-FIN is therefore tailored to study macro-financial issues related to housing and credit, and the adequate policy responses.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CBM Working Papers ; No. WP/04/2020

Classification and Topics

• Classification: Wirtschaft ; Quantitative Policy Modeling ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
• Subject: borrowing constraints ; loan-to-value ratio ; capital-to-assets ratio ; macroprudential policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gatt, William ; Rapa, Noel ; Brugnolini, Luca
• Event: Veröffentlichung
• (who): Central Bank of Malta
• (where): Valletta
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/237304
• Last update: 10.03.2025, 11:43 AM CET