Housing Boom‐Bust Cycles and Asymmetric Macroprudential Policy

William Gatt

Journal of Money, Credit and Banking, 2025, vol. 57, issue 2-3, 615-643

Abstract: In this paper, I argue that occasionally binding borrowing constraints are a source of nonlinearity that warrant an appropriate nonlinear macroprudential policy response. Nonlinear policy responses likely better capture the spirit of macroprudential policy. I show that an asymmetric macroprudential policy rule, which lowers the borrowing limit more aggressively during credit booms, obtains better economic outcomes compared to an optimized symmetric rule that is typically studied in the literature. An asymmetric policy response reduces output and inflation tail risks, generating not only better economic stabilization but also positive externalities to monetary policy.

Date: 2025
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https://doi.org/10.1111/jmcb.13097

Related works:
Working Paper: Housing boom-bust cycles and asymmetric macroprudential policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:57:y:2025:i:2-3:p:615-643

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