Appendix: Full description of the model
Anand, R., Delloro, V., and Peiris, S. J., 2014, “A Credit and Banking Model for Emerging Markets and an Application to the Philippines,” Proceedings of the 2014 BSP International Research Conference, Issue 2 (Manila: Bangko Sentral ng Pilipinas).
Angelini, P., Neri, S., and Panetta, F., 2014, “The Interaction between Capital Requirements and Monetary Policy,” Journal of Money, Credit, and Banking, 46(6), pp. 1073–1112.
Bank of Thailand, 2017, “Macroprudential Framework: The Case of Thailand.” in Macroprudential frameworks, implementation and relationship with other policies, BIS Paper No. 94, 339–348.
Corbacho, A., Peiris, S. J., and Saenz, M., 2018, “Macroeconomic Policy Synergies for Sustained Growth” Chapter 9, The ASEAN Way.
Curdia, V., and Woodford, M., 2010, “Credit Spreads and Monetary Policy,” Journal of Money, Credit and Banking 42 (S1), pp. 3–35.
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The authors are grateful to Lamin Leigh, Ana Corbacho, Shanaka Jay Peiris, Miklos Vari, Pawel Zabczyk, the 2018 IMF Article IV mission team to Thailand, and seminar participants at the Bank of Thailand for helpful comments and discussions. The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.
Pongsaparn et al. (2017) shows that the Bank of Thailand’s measures on LTV ratio were effective in moderating housing credit growth. In the global context, a cross-country panel regression analysis of the effects of macroprudential measures on household credit growth across advanced and emerging market economies, including Thailand, is reported in the October 2017 GFSR Chapter 2, Box 2.5 (IMF, 2017).
During this period, inflation has been weak while pockets of financial risk have kept the authorities concerned.
The banking sector in the model encompasses all types of financial intermediaries (including Specialized Financial Institutions) and does not distinguish different mandates and business models among them.
“Impatient households” can also be interpreted as liquidity-constrained households in this model.
Using some alternative financial gaps, including a house price gap, does not change the results substantively.
Another possible combination of policy rules, namely a modified Taylor rule with a counter-cyclical LTV rule, is examined in Corbacho et al. (2018). Its outcomes fall in the middle of those of (ii) and (iii).
For illustrative purpose, we set some large values to the parameters of the policy responses to credit gaps in the counter-cyclical LTV rule and the modified Taylor rule.
Although the nominal rate drops by more under the modified Taylor Rule than under the other policy rules, this barely compensates for the larger decline in inflation. As a result, the reduction in the real interest rate is relatively small under the modified Taylor rule.
The parameter α in the equation (34) of Appendix is changed from 0.5 (benchmark case) to 0.8 (flattened Philips Curve case).
In this case, the model cannot be solved under the policy combination of a standard Taylor rule with a constant LTV rule.