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Out of Sync Subnational Housing Markets and Macroprudential Policies

Michael Funke, Petar Mihaylovski and Adrian Wende

No 6887, CESifo Working Paper Series from CESifo Group Munich

Abstract: In view of regional house prices drifting apart, we examine whether regionally differentiated macroprudential policies can address financial stability concerns and moderate house price differences. To this end, we disaggregate both the household sector and the housing stock in a two-region DSGE model with out of sync subnational housing markets and compare four macroprudentail policy types: standard monetary policy by means of a standard Taylor rule, leaning against the wind monetary policy, national macroprudential policy or one that targets region-specific LTV ratios. In terms of reducing variances of house prices, regionally differentiated macroprudential policy performs best, provided the policy authorities are concerned with stabilising output and house prices rather than simply minimising the variance of inflation. Thus the findings point to a critical role for policy in regionalising macroprudential tools.

Keywords: macroprudential policies; housing; DSGE; Great Britain (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6887

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