Finance Minister Jim Flaherty is announcing tighter mortgage lending rules, according to news reports.From a macroeconomic point of view, its the right thing to do, I believe.
Housing is showing signs of turning into a bubble in Canada. One of the more visible signs isprices rising to record levels despite a lot of unused capacityin the economy.
There was the danger the Bank of Canada would eventually have to respond by raising interest rates. But the rest of the economy is still weak and higher rates would have threatened the recovery.
The export sector would have been particularly hit hard. Higher interest rates would have attracted capital inflows and bid up the Canadian dollar. Dealing with the housing boom through regulatory policy was the appropriate response from the perspective of macroeconomic stability.
Blogs & Comment
Restrictions on mortgage lending
By Larry MacDonald
Finance Minister Jim Flaherty is announcing tighter mortgage lending rules, according to news reports.From a macroeconomic point of view, its the right thing to do, I believe.
Housing is showing signs of turning into a bubble in Canada. One of the more visible signs isprices rising to record levels despite a lot of unused capacityin the economy.
There was the danger the Bank of Canada would eventually have to respond by raising interest rates. But the rest of the economy is still weak and higher rates would have threatened the recovery.
The export sector would have been particularly hit hard. Higher interest rates would have attracted capital inflows and bid up the Canadian dollar. Dealing with the housing boom through regulatory policy was the appropriate response from the perspective of macroeconomic stability.