Which macroprudential policy instruments is more effective? From the perspective of China's economic model

This study establishes a dynamic stochastic general equilibrium (DSGE) model incorporating the real estate sector and heterogeneous households. Two macroprudential policy instruments are introduced to examine their effectiveness in maintaining financial system stability and identify optimal policy implementation strategies. The findings reveal that macroprudential policies effectively cushion against adverse shocks and significantly mitigate both economic and financial volatility. Through classifying policy instruments by their transmission channels, the loan-to-value ratio (LTV) operates primarily through the asset side, while the countercyclical capital buffer (CCyB) functions through the capital channel. Comparative analysis demonstrates that LTV policies exhibit superior effectiveness in stabilizing economic fluctuations. Furthermore, our investigation into policy design principles suggests that macroprudential instruments should prioritize credit aggregates over housing price targeting. Specifically, the LTV mechanism achieves minimal social welfare loss when calibrated to credit cycles, whereas the CCyB requires simultaneous consideration of housing prices and credit dynamics for optimal welfare outcomes.