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AbstractIn the wake of the 2008–2009 global financial crisis, the macroeconomic discussion has returned to the topic of proactive macroprudential policies. The use of loan‐to‐value (LTV) policies to curb booming property markets has long been used by Hong Kong's monetary authorities to actively manage the potential fallout from housing price bubbles. In 2013 the Hong Kong authorities supplemented the LTV policies with property transfer taxes. Here, we also analyse the merits of these tax‐based macroprudential policies in the dynamic stochastic general equilibrium framework. Furthermore, we calibrate the impact of both countercyclical macroprudential policies employed in conjunction with forward guidance. We conclude that both policy approaches can limit the pace of housing price increases. As regards the comparison of LTV and tax‐based measures, it turns out that property acquisition taxes are more effective.

AbstractWe present a small‐scale dynamic stochastic general equilibrium model that features price rigidities, habit formation in consumption and costs in capital adjustment. We estimate the key parameters and calibrate the model with data for the Chinese economy. Our interest centres on the impact of technology and monetary policy shocks for different structures of the Chinese economy. In particular, we evaluate how a rebalancing of the economy from investment‐led to consumption‐led growth would affect the economic dynamics after a shock occurs. Our findings suggest that a rebalancing would reduce the volatility of the real economy in the event of a technology shock, which provides support for policies aiming to increase the consumption share in China.