Macroprudential policy in an agent-based model of the UK housing market
Arzu Uluc (Bank of England)
The Institute of Economics will hold the next meeting of its Seminar Series on Tuesday, October 21, 2019: Arzu Uluc, from the Bank of England, will present the paper Macroprudential policy in an agent-based model of the UK housing market.
The paper develops an agent-based model of the UK housing market to study the impact of macroprudential policies on key housing market indicators. This approach enables to tackle the heterogeneity in this market by modelling the individual behaviour and interactions of first-time buyers, home owners, buy-to-let investors, and renters from the bottom up, and observe the resulting aggregate dynamics in the property and credit markets. The model is calibrated using a large selection of micro-data, mostly from household surveys and housing market data sources. We perform a series of comparative statics exercises to investigate the impact of the size of the rental buy-to-let sector and different types of buy-to-let investors on housing booms and busts. The results suggest that an increase in the size of the buy-to-let sector may amplify house price cycles and increase house price volatility. Furthermore, in order to illustrate the effects of macroprudential policies on several housing market indicators, the authors implement a loan-to-income portfolio limit. The authors find that this policy attenuates the house price cycle.