Policies for Macrofinancial Stability: Options to Deal with Real Estate Booms

Author/Editor: Dell'Ariccia, Giovanni ; Rabanal, Pau ; Crowe, Christopher ; Igan, Deniz
Publication Date: March 01, 2011
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Summary: The crisis has shifted the policy consensus away from the “benign neglect” view that it is better to pick up the pieces after a bust than try to prevent a real-estate boom in the first place. Yet, a call for a more preventive policy action raises more questions than it provides answers. What kind of indicators should trigger policy intervention to stop or slow down a real estate boom? Even assuming policymakers were fairly certain that intervention were warranted, what would be the policy tools at their disposal? What are their impacts? What are their negative side effects and limitations? What practical issues (including political economy considerations) would limit their use? This note will explore these questions. It will open with a summary of how real-estate boom-bust cycles may threaten financial and macroeconomic stability. It will discuss different policy options to reduce the risks associated with real estate booms, drawing upon several country experiences and the insights from an analytical model. The note will conclude with a brief discussion of guiding principles in using public policy measures to deal with real estate booms.
Series: Staff Discussion Notes No. 11/2
Subject(s): Bank supervision | Banking sector | Credit expansion | Economic models | Financial stability | Housing prices | Property taxes | Real estate prices

Author's Keyword(s): Real estate | macro-prudential regulation | macroeconomic policy
Publication Date: March 01, 2011
ISBN/ISSN: 9781616350901 Format: Paper
Stock No: SDNEA2011002 Pages: 34
US$20.00 (Academic Rate:
US$20.00 )
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