Exploring the implications of different loan-to-value macroprudential policy designs |
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Authors: | R Basto S Gomes D Lima |
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Institution: | 1. Banco de Portugal, Financial Stability Department, Rua Castilho, 24 -2o., 1269-179, Lisbon, Portugal;2. Nova SBE, Portugal;3. Banco de Portugal, Economic Research Department, Av. Almirante Reis 71, 1150-012 Lisbon, Portugal |
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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. |
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Keywords: | E58 E61 F42 Macroprudential policy Loan-to-value ratio Financial frictions |
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