Housing boom-bust cycles and asymmetric macroprudential policy

Arbeitspapier

Macroprudential policy is pre-emptive, aimed at preventing crises. Empirical evidence hints at the existence of asymmetric policy in booms and recessions. This paper uses a New Keynesian model with a financial friction on mortgage borrowing and collateral to show what implications this asymmetry might have on the economy. The main source of fluctuations is a bubble in the housing market, which causes house prices and credit to deviate from their fundamental values, leading to a boom and bust cycle. The main macroprudential tool is the regulatory loan to value (LTV) ratio. The author finds that while the asymmetric policy dampens the boom phase, it introduces more volatility in the economy by exacerbating the correction that follows. The higher the asymmetry in the policy response, the more volatile the economy is relative to one in which policy reacts symmetrically.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CBM Working Papers ; No. WP/02/2018

Classification and Topics

• Classification: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gatt, William
• Event: Veröffentlichung
• (who): Central Bank of Malta
• (where): Valletta
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/210824
• Last update: 10.03.2025, 11:42 AM CET