Abstract
Considering three monetary policy rules, together with two endogenous macroprudential policies that are credit constraints (loan to value, LTV) for households and counter-cyclical capital (capital requirement ratio, CRR) for bankers, this paper establishes a dynamic stochastic general equilibrium (DSGE) model. Based on the welfare analysis of different combinations of macroprudential rules and monetary policy rules, this paper identifies the optimal policy combinations and analyzes the coordination effects between macroprudential policies and monetary policies. The results show that no matter what kind of monetary policy rules is implemented, the introduction of macroprudential rules has improved the level of total social welfare. In the optimal “two pillars” framework of monetary policies and macroprudential rules, the main objective of monetary policy is to stabilize price inflation, and the macroprudential policy to be implemented is the CRR macroprudential policy. This combination can effectively promote the stability of the real estate market, financial market, and macroeconomy, while maximizing the improvement of total social welfare.
Highlights
E structure of this paper is as follows: Section 1 is the introduction; Section 2 reviews the relevant literature; Section 3 establishes a multisector dynamic stochastic general equilibrium (DSGE) model; Section 4 introduces the welfare analysis methods and calibrates the parameters; Section 5 is the model simulation; Section 6 is a conclusion
Based on the analysis framework of the DSGE model considering the housing market, this paper identifies the optimal policy combinations, discusses the fluctuation characteristics of the main macroeconomic variables, and analyzes the coordination effects between macroprudential policies and monetary policies. e results show the following
Irrespective of the kind of monetary policy rules, the total social welfare has been improved after the introduction of endogenous LTV or CRR macroprudential rules
Summary
There are many theoretical and empirical researches on the impact of monetary policy on housing prices and economic growth. E research showed that the macroprudential tools of credit constraints stabilized housing prices, which was conducive to the prevention of financial system risks [10]. Regarding the CRR macroprudential tool, Akram showed that counter-cyclical capital requirements had a significant impact on housing prices and credit growth [13]. E results showed that the effect of macroprudential tools on macroeconomy was limited in normal period, but it was more obvious after the financial crisis In their study, they discussed the coordination effects between different policies but did not analyze the welfare change and the optimal policy. The main goal of monetary policy is to stabilize price inflation or to consider the factors of output and housing prices further; besides, the effect and evaluation of the two policy combinations need further study. The institutional reform often exceeds the basis of theoretical research and market development; besides, the macroprudential framework and policy implementation often face with many challenges, and it is necessary to analyze relevant policies in a structured approach from a theoretical perspective. is study can provide some reference for macroprudential authorities
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