Exploring the implications of different loan-to-value macroprudential policy designs

R. Basto, S. Gomes, D. Lima

Research output: Contribution to journalArticle

3 Citations (Scopus)
1 Downloads (Pure)

Abstract

We evaluate the macroeconomic effects of changes in loan-to-value ratios in a multi-country model with financial frictions and a banking sector. Main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction. A euro area wide measure implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.

Original languageEnglish
Pages (from-to)66-83
Number of pages18
JournalJournal of Policy Modeling
Volume41
Issue number1
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Financial frictions
  • Loan-to-value ratio
  • Macroprudential policy

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