Monetary and Macroprudential Policy Rules in a Model with House Price Booms
International Monetary Fund, Nov 1, 2009 - Assets (Accounting) - 36 pages
This paper introduces a methodology for assessing external balance in countries with large stocks of non-renewable resources based on oil stock data, and applies it to selected oil producing countries. The methodology uses a stock approach (instead of the more traditional flow approach) to estimate the equilibrium non-oil current account consistent with optimal consumption smoothing. One of the benefits of the stock approach is that geological data for oil reserves can be used to estimate oil wealth; however, the methodology makes the estimated non-oil current account norm very sensitive to oil price projections. Based on an oil price about US$70 per barrel prevailing in the summer of 2007, the baseline estimates indicate that the non-oil current accounts for most of the countries in the sample are broadly in equilibrium. By the same token, using oil price projections as of the summer of 2008 implies large disparities between the equilibrium non-oil current account position and the medium term forecast for all countries in the sample except for Malaysia.
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adjustment costs asset price busts assume augmented Taylor rule Bernanke Business Cycle central bank charge over funding Christiano collateral CPI inflation credit market different policy regimes discount factor durable economy Euler equation final goods producers Financial Accelerator gap and inflation GDP deflator Hence Higher lending rate households housing stock Iacoviello and Neri IMF Working Paper interest rate Intermediate goods producers International Monetary Fund labor reallocation costs labor supply Lagrange multiplier lending rate elasticity lending standards loan-to-value ratio Lower lending rate macroprudential instrument macroprudential policies macroprudential regime macroprudential rule macroprudential tool Mark Gertler market clearing conditions markup monetary and macroprudential monetary policy reactions monetary policy rule nominal credit nominal house price nominal rigidities nondurable consumption optimal weight output gap policy makers residential investment share of residential shock driving simulations standard Taylor rule Taylor and macroprudential Taylor plus macroprudential technology shocks variables volatility weight on nominal weights on inflation Woodford zero