| Description |
1 online resource (45 pages) |
| Series |
IMF Working Paper ; WP/19/184 |
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IMF working paper ; WP/19/184.
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| Contents |
Cover; Contents; 1. Introduction; 2. Literature; 3. Model Economy; 3.1. Small open economy with an asset price bubble; 4. Optimal Macroprudential Policy; 4.1. Time-consistent planner's problem; 4.2. Optimal tax rate in the presensce of a bubble; 5. Quantitative Analysis; 5.1. Calibration; 5.2. Numerical results; 6. Conclusions; References; Appendices; Figures; 1. U.S. Credit Imbalances and Asset Price Overvaluations; 2. Policy rules for borrowing and asset prices in the presence and absence of a bubble; 3. Optimal tax on borrowing in the presence of an asset price bubble |
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4. Model simulations: Responses of key variables to a binding credit constraint5. Model simulations: Social Planner's allocations; Table; 1. Calibration |
| Summary |
An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles non-monotonically depending on the underlying level of indebtedness. If the level of debt is moderate, policy should accommodate the bubble to reduce the incidence of a binding collateral constraint. If debt is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind |
| Notes |
Print version record |
| Subject |
Credit -- Econometric models
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Stocks -- Prices -- Econometric models
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Credit -- Econometric models
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Collateral constraints.
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Macroprudential regulation.
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Optimal policy.
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Rational bubbles.
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| Form |
Electronic book
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| Author |
Gornicka, Lucyna, author.
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Vardoulakis, Alexandros, author
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International Monetary Fund, issuing body.
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| ISBN |
1513512684 |
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9781513512686 |
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