A DSGE-Based Assessment of Nonlinear Loan-to-Value Policies: Evidence from Hong Kong

26 Pages Posted: 2 May 2012

See all articles by Michael Funke

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Michael Paetz

University of Hamburg

Date Written: April 27, 2012

Abstract

In the wake of the 2008-2009 global financial crisis, the macroeconomic discussion has returned to the topic of proactive macroprudential policies. One proactive approach, the use of loan-to-value (LTV) policies to curb booming property markets, has long been used by Hong Kong’s monetary authorities to actively manage and mitigate the potential fallout from housing price bubbles. Here, we analyze the merits of this countercyclical macroprudential policy in a New Keynesian DSGE model. We conclude that nonlinear LTV policy rules implemented in reaction to episodes of high property price inflation can limit transmission of housing price cycle effects to the real economy.

Keywords: macroprudential policy, DSGE model, loan-to-value ratio, Hong Kong

JEL Classification: C63, E21, E32, E69, F41

Suggested Citation

Funke, Michael and Paetz, Michael, A DSGE-Based Assessment of Nonlinear Loan-to-Value Policies: Evidence from Hong Kong (April 27, 2012). BOFIT Discussion Paper No. 11/2012, Available at SSRN: https://ssrn.com/abstract=2049783 or http://dx.doi.org/10.2139/ssrn.2049783

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Michael Paetz

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
290
Abstract Views
1,321
rank
125,139
PlumX Metrics