On the Effectiveness of Loan-to-Value Regulation in a Multiconstraint Framework
Research output: Contribution to journal › Article
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.
|Research areas and keywords||
Subject classification (UKÄ) – MANDATORY
|Journal||Journal of Money, Credit and Banking|
|Publication status||E-pub ahead of print - 2019 May 16|