Macroprudential and Monetary Policies: Implications for House Prices and Household Debt

Yongseung Jung

Professor, The Department of Economics, Kyung Hee University, Korea jungys@khu.ac.kr

JEL Classification: E32, E44

Abstract

This study examines the effect of the interaction between time-varying macroprudential policy and credit growth or house price growth on dampening the excess volatility of household debt in the standard DSGE model. The study also discusses the effect of introducing the debt-to-income ratio, aside from the loan-to-value ratio, on cooling down large household debt swings. Moreover, this study shows that the reaction of macroprudential policy to credit growth is more effective than its reaction to house price growth in moderating household debt swings to exogenous shocks.

Keywords:

House price, Macroprudential policy, Monetary policy

Acknowledgments

This paper was completed during the author’s stint as visiting professor at the Kyoto Institute of Economic Research, Kyoto University. The author expresses appreciation to the KIER for their hospitality. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2014S1A3A2044637).

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