Macro-prudential policy, its alignment with monetary policy and house price growth: A cross-country study

Abstract

We study how the alignment or mis-alignment between macro-prudential policy and monetary policy influences the effect of macro-prudential policy on mitigating booms in housing markets. The results based on a panel dataset consisting of 41 countries over the period of 2000–2014 show that when the two policy tools change in the same direction (loosening or tightening), the effect of macro-prudential policy on house price growth strengthens. When they change in the opposite directions (one loosening and the other tightening), the effect of macro-prudential policy weakens. Our findings also point out the heterogeneous nature of the impact showing that these effects occur mainly in emerging economies and are particularly strong for policy tools that are designed specifically for housing market. Our findings contribute to the understanding of how coordination of macro-prudential and monetary policies helps to combat house price growth and carry important policy implications.