House Prices, Capital Inflows and Macroprudential Policy

Arbeitspapier

This paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkage4s between current account deficits and financial vulnerabilities. We develop a two-country dynamic stochastic general equilibrium (DSGE) model with heterogeneous households and collateralised debt. The model predicts that external shocks are important in driving current account deficits that are coupled with run-ups in house prices and household dept. In this context, optimal policy features an interestrate response to credit and a LTV ration that countercyclically responds to house price dynamics. By allowing an interest-rate response to changes in financial variables, the monetary policy authority improves social welfare, because of the large welfare gains accrued to the savers. The additional use of a countercyclical LTV ratio that responds to house prices, increases the ability of borrowers to smooth consumption over the cycle and is Pareto improving. Domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: FinMaP-Working Paper ; No. 10

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Money Supply; Credit; Money Multipliers ; Current Account Adjustment; Short-term Capital Movements ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Thema: house prices ; financial frictions ; global imbalances ; saving glut ; dynamic loan-to value ratios ; monetary policy ; optimized simple rules

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Mendicino, Caterina ; Punzi, Maria Teresa
• Ereignis: Veröffentlichung
• (wer): Kiel University, FinMaP - Financial Distortions and Macroeconomic Performance
• (wo): Kiel
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/102274
• Letzte Aktualisierung: 20.09.2024, 08:22 MESZ