00000cam 2200000za 4500 9.816520 CaOODSP 20260112112551 cr ||||||||||| 160428s2016 oncd ob f000 0 eng d CaOODSP eng eng fre n-cn--- FB3-5/2016-19E-PDF Alpanda, Sami. Should monetary policy lean against housing market booms? [electronic resource] / by Sami Alpanda and Alexander Ueberfeldt. [Ottawa] : Bank of Canada, 2016. iv, 41 p. : fig., tables Staff Working Paper, 1701-9397 ; 2016-19 "April 2016." Includes bibliographical references (p. 24-27). Should monetary policy lean against housing market booms? We approach this question using a small-scale, regime-switching New Keynesian model, where housing market crashes arrive with a logit probability that depends on the level of household debt. This crisis regime is characterized by an elevated risk premium on mortgage lending rates, and, occasionally, a binding zero lower bound on the policy rate, imposing large costs on the economy. Using our set-up, we examine the optimal level of monetary leaning, introduced as a Taylor rule response coefficient on the household debt gap. We find that the costs of leaning in regular times outweigh the benefits of a lower crisis probability. Although the decline in the crisis probability reduces volatility in the economy, this is achieved by lowering the average level of debt, which severely hurts borrowers and leads to a decline in overall welfare. gccst Housing gccst Markets gccst Monetary policy Ueberfeldt, Alexander. Bank of Canada. Staff working paper (Bank of Canada) 1701-9397 ; 2016-19 (CaOODSP)9.806221 PDF 891 KB https://publications.gc.ca/collections/collection_2016/banque-bank-canada/FB3-5-2016-19-eng.pdf