INTERACTIONS OF MONETARY AND MACROPRUDENTIAL POLICIES IN NEW ZEALAND: A SVAR ANALYSIS

The primary objective of this research paper is to investigate the interactions between monetary and macroprudential policies to achieve macroeconomic and financial stability, particularly housing prices within the context of New Zealand, an inflation-targeting economy. Employing a Structural vector autoregression model with quarterly data from 2000 to 2023, we analyse the transmission mechanisms of these policies and their combined impacts. Findings suggest that contractionary monetary policy shocks, which hike policy rates, will decelerate economic activity and price levels (disinflation) but unexpectedly exacerbate real credit growth. Conversely, an expansionary macroprudential policy shock, which increases loan-to-value limits, will boost real credit and output in the short term. Additionally, both policy shocks result in higher property prices, which suggests evidence of wealth effects. These results are robust across the identification schemes, which are Choleski decomposition, long-run restrictions, and sign restrictions. Therefore, our study underscores the need for coordinated monetary and macroprudential policies to achieve both price and financial stability, cautioning against using monetary policy to directly address financial stability concerns.