We use a panel VAR to study the effect of shocks to capital inflows, which are identified using sign restrictions, on the housing market in OECD countries. To explore how effects of these shocks change with the structure of the mortgage market and the degree of mortgage securitization, we allow the VAR coefficients to vary with mortgage-market characteristics. Our results indicate that capital-inflow shocks have a significant and positive effect on real house prices, real credit available to the private sector, and real residential investment. The responses of these variables are stronger in countries with more developed mortgage markets and in countries where securitization is allowed.

No abstract

Reserve requirements are a prominent policy instrument in many emerging countries. The present study investigates the circumstances under which reserve requirements are an appropriate policy tool for price or financial stability. We consider a small open-economy model with sticky prices, financial frictions, and a banking sector that is subject to legal reserve requirements and compute optimal interest rate and reserve requirement rules. Overall, our results indicate that reserve requirements can support the price stability objective only if financial frictions are important and lead to substantial improvements if there is a financial stability objective. Contrary to a conventional interest rate policy, reserve requirements become more effective when there is foreign currency debt.JEL Codes: E580, E520, F410, G18.

No abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.