On the Effectiveness of Loan-to-Value Regulation in a Multiconstraint Framework
(2020) In Journal of Money, Credit and Banking 52(5). p.1231-1270- Abstract
Models in the infinite horizon macro-housing literature often assume that borrowers are constrained exclusively by the loan-to-value (LTV) ratio. Motivated by the Swedish microdata, I explore an alternative arrangement where borrowers are constrained by a collateral constraint and by a debt-service-to-income ratio. While stricter LTV limits are often considered as a measure to tackle the rise in household indebtedness, I find that policy designed to lower the maximum permissible LTV ratio may actually leave the debt-to-GDP ratio unchanged and increase housing prices in equilibrium if borrowers are bound by two constraints at the same time.
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https://lup.lub.lu.se/record/9707f873-ffff-4831-8714-ae8e249e3275
- author
- Grodecka, Anna LU
- organization
- publishing date
- 2020
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- borrowing constraints, debt to GDP, debt-service-to-income ratio, E32, E44, E58, G21, household indebtedness, loan-to-value ratio, macroprudential policy, occasionally binding constraints, R21
- in
- Journal of Money, Credit and Banking
- volume
- 52
- issue
- 5
- pages
- 1231 - 1270
- publisher
- Wiley-Blackwell
- external identifiers
-
- scopus:85066013502
- ISSN
- 0022-2879
- DOI
- 10.1111/jmcb.12623
- language
- English
- LU publication?
- yes
- id
- 9707f873-ffff-4831-8714-ae8e249e3275
- date added to LUP
- 2019-06-14 13:58:50
- date last changed
- 2022-04-18 06:45:18
@article{9707f873-ffff-4831-8714-ae8e249e3275,
abstract = {{<p>Models in the infinite horizon macro-housing literature often assume that borrowers are constrained exclusively by the loan-to-value (LTV) ratio. Motivated by the Swedish microdata, I explore an alternative arrangement where borrowers are constrained by a collateral constraint and by a debt-service-to-income ratio. While stricter LTV limits are often considered as a measure to tackle the rise in household indebtedness, I find that policy designed to lower the maximum permissible LTV ratio may actually leave the debt-to-GDP ratio unchanged and increase housing prices in equilibrium if borrowers are bound by two constraints at the same time.</p>}},
author = {{Grodecka, Anna}},
issn = {{0022-2879}},
keywords = {{borrowing constraints; debt to GDP; debt-service-to-income ratio; E32; E44; E58; G21; household indebtedness; loan-to-value ratio; macroprudential policy; occasionally binding constraints; R21}},
language = {{eng}},
number = {{5}},
pages = {{1231--1270}},
publisher = {{Wiley-Blackwell}},
series = {{Journal of Money, Credit and Banking}},
title = {{On the Effectiveness of Loan-to-Value Regulation in a Multiconstraint Framework}},
url = {{http://dx.doi.org/10.1111/jmcb.12623}},
doi = {{10.1111/jmcb.12623}},
volume = {{52}},
year = {{2020}},
}