Arbeitspapier

Housing market dynamics and macroprudential policy

We perform an analysis to determine how well the introduction of a countercyclical loanto- value (LTV) ratio can reduce household indebtedness and housing price fluctuations compared with a monetary policy rule augmented with house price inflation. To this end, we construct a New Keynesian model in which a fraction of households borrow against the value of their houses and we introduce news shocks on housing demand. We estimate the model with Canadian data using Bayesian methods. We find that the introduction of news shocks can generate a housing market boom-bust cycle, the bust following unrealized expectations on housing demand. Our study also suggests that a countercyclical LTV ratio is a useful policy to reduce the spillover from the housing market to consumption, and to lean against news-driven boom-bust cycles in housing price and credit generated by expectations of future macroeconomic developments.

Language
Englisch

Bibliographic citation
Series: Bank of Canada Staff Working Paper ; No. 2016-31

Classification
Wirtschaft
Price Level; Inflation; Deflation
Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Subject
Business fluctuations and cycles
Financial stability
Housing
Monetary policy framework
Transmission of monetary policy

Event
Geistige Schöpfung
(who)
Bruneau, Gabriel
Christensen, Ian
Meh, Césaire Assah
Event
Veröffentlichung
(who)
Bank of Canada
(where)
Ottawa
(when)
2016

DOI
doi:10.34989/swp-2016-31
Handle
Last update
20.09.2024, 8:24 AM CEST

Data provider

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Bruneau, Gabriel
  • Christensen, Ian
  • Meh, Césaire Assah
  • Bank of Canada

Time of origin

  • 2016

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