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Towards Understanding Macrofinancial Impacts of Loan†to†Value Ratio Policy in New Zealand: A General Equilibrium Perspective

Martin Fukac, Lucy Greig and Daniel Snethlage

Australian Economic Review, 2018, vol. 51, issue 1, 99-131

Abstract: We use a dynamic stochastic general equilibrium model as a framework for thinking about the transmission mechanism of loan†to†value macroprudential policy. We analyse the key channels through which the caps on loan†to†value ratios work to limit the speed of asset and credit cycles. We further analyse the mechanisms through which the caps support financial system resilience during asset price downturns that are of sufficient magnitude to cause financial and macroeconomic instability.

Date: 2018
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Handle: RePEc:bla:ausecr:v:51:y:2018:i:1:p:99-131