The Costs of Macroprudential Deleveraging in a Liquidity Trap
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Summary:
We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero-lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to loan-to-income tightening when debt is high and monetary policy cannot accommodate.
Series:
Working Paper No. 2020/089
Subject:
Consumption Financial services Housing Housing prices Labor National accounts Prices Zero lower bound
English
Publication Date:
June 12, 2020
ISBN/ISSN:
9781513546803/1018-5941
Stock No:
WPIEA2020089
Pages:
66
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