Mitigating the Deadly Embrace in Financial Cycles

Download or read book Mitigating the Deadly Embrace in Financial Cycles written by Mr.Jaromir Benes and published by International Monetary Fund. This book was released on 2016-04-12 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations. We extend the original model by explicitly modeling the housing market. We show how household demand for housing, house prices, and bank mortgages are intertwined in what we call a deadly embrace. Without macroprudential policies, this deadly embrace naturally leads to housing boom and bust cycles, which can be very costly for the economy, as shown by the Global Financial Crisis of 2008-09.