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

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  • Martin Fukac
  • Lucy Greig
  • Daniel Snethlage

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.

Suggested Citation

  • Martin Fukac & Lucy Greig & Daniel Snethlage, 2018. "Towards Understanding Macrofinancial Impacts of Loan†to†Value Ratio Policy in New Zealand: A General Equilibrium Perspective," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 99-131, March.
    • Handle: RePEc:bla:ausecr:v:51:y:2018:i:1:p:99-131
    DOI: 10.1111/1467-8462.12256
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    References listed on IDEAS

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    1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    3. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "Recovery from Financial Crises: Evidence from 100 Episodes," American Economic Review, American Economic Association, vol. 104(5), pages 50-55, May.
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    Cited by:

    1. Fennee Chong & Venus Khim-Shen Liew, 2020. "New Zealand's Residential Price Dynamics: Do capability to consume and government policies matter?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2262-2274.

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