Alexander Ueberfeldt is Senior Research Advisor in the Strategic Leadership & Support team of the Financial Stability Department. An applied macroeconomist, Alexander’s research recently focused on the interaction of monetary policy and financial stability. In addition, he has contributed to the understanding of price-level targeting and long-run trends in macro-labour economics. He holds a PhD in Economics from the University of Minnesota.
Financial system vulnerabilities increase the downside risk to future GDP growth. Macroprudential tightening significantly reduces financial stability risks associated with vulnerabilities. Monetary policy faces a trade-off between financial stability and macroeconomic risks.
This report examines detailed data on home mortgages to provide a better understanding of the vulnerabilities associated with the mortgage market. The proportion of low-ratio mortgages is growing, particularly in regions with strong house price growth. Moreover, these borrowers exhibit less flexibility to adverse shocks, since they have high debt levels relative to income and have taken mortgages with long amortization periods.
We develop a model in which a financial intermediary’s investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking.
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.