The Interaction between Macroprudential and Monetary Policies and the Housing Market—A VAR Examination for Israel
We examine the interaction between housing-market macroprudential (MaP) measures, monetary policy, and housing market dynamics in Israel. Using a structural VAR, we show that monetary policy and MaP policy react to positive shocks to house prices and to the volume of transactions in the housing market, acting as complementary policies, but do not react to changes in the levels of mortgage debt. We find that MaP measures are tigghtened in response to negative (accomodative) monetary policy shocks, offsetting their effect, while monetary policy only weakly reacts to shocks to MaP measures. Similar to the findings in previous research, contractionary monetary policy and MaP measures tend to mitigate the increase in house prices. Transaction volume declines in response to monetary tightening, and is also reduced in response to MaP measures, after a temporary increase. While monetary policy does not significantly change housing debt, MaP measures do have a mitigating effect on debt after a few periods. Our results are robust to alternative specifications.