House Prices and Macroprudential Policy in an Estimated DSGE Model of New Zealand

46 Pages Posted: 19 Jun 2017

See all articles by Michael Funke

Michael Funke

University of Hamburg - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Robert Kirkby

Victoria University of Wellington - School of Economics & Finance

Petar Mihaylovski

University of Hamburg - Department of Economics

Date Written: May 30, 2017

Abstract

We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to New Zealand. We find that the main historical drivers of house prices are shocks specific to the housing sector. While our estimates show that monetary policy has large spillover effects on house prices, it does not appear to have been a major driver of house prices in New Zealand. We consider macroprudential policies, including the loan-to-value restrictions that have been implemented in New Zealand. We find that loan-to-value restrictions reduce house prices with negligible effects on consumer prices, suggesting that they can be used without derailing monetary policy. We estimate that the loan-to-value restrictions imposed in New Zealand in 2013 reduced house prices by 3.8 per cent and that greater forward guidance on their duration would have made them more effective.

Keywords: macroprudential policies, housing, DSGE, Bayesian estimation, New Zealand

JEL Classification: E320, E440, E520, E580

Suggested Citation

Funke, Michael and Kirkby, Robert and Mihaylovski, Petar, House Prices and Macroprudential Policy in an Estimated DSGE Model of New Zealand (May 30, 2017). CESifo Working Paper Series No. 6487. Available at SSRN: https://ssrn.com/abstract=2988929

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Robert Kirkby

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

Petar Mihaylovski

University of Hamburg - Department of Economics ( email )

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

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