A small open-economy DSGE model with a mortgage market for Mongolia

Purpose We compare the macroeconomic and housing-market effects of (1) reducing mortgage subsidies, (2) tightening borrower-based tools (debt-service-to-income [DSTI]/loan-to-value [LTV]) and (3) standard monetary and external shocks. Design/methodology/approach We develop a small open-economy (SOE) New Keynesian dynamic stochastic general equilibrium (DSGE) model that embeds a housing market featuring LTV and DSTI constraints. Borrower-based policy instruments and mortgage interest subsidies are calibrated to Mongolian institutions. Findings High subsidies amplify house-price and consumption volatility and strengthen monetary transmission through the mortgage channel. Relative to tightening DSTI, cutting subsidies achieves comparable reductions in leverage and house-price pressures at lower output and consumption costs, suggesting a policy sequencing in which subsidies are scaled down before DSTI caps are tightened. Originality/value We develop the first Mongolia-calibrated small open-economy New Keynesian DSGE that embeds a mortgage block with explicit LTV and DSTI constraints and a government mortgage–subsidy wedge. By unifying monetary, macroprudential (DSTI/LTV) and fiscal (subsidy) instruments, the model quantifies policy sequencing and transmission under external shocks.