Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148138
Authors: 
Bruneau, Gabriel
Christensen, Ian
Meh, Césaire Assah
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-31
Abstract: 
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.
Subjects: 
Business fluctuations and cycles
Financial stability
Housing
Monetary policy framework
Transmission of monetary policy
JEL: 
E31
E42
H23
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.