Effectiveness of macroprudential policies under borrower heterogeneity

Maria Teresa Punzi, Katrin Rabitsch-Schilcher

Publication: Working/Discussion PaperWU Working Paper

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Abstract

We study the impact of macroprudential policies using a novel model which takes into account households´ ability to borrow under different loan-to-value ratios which are tied to their collateral values. Such model generates a larger
amplification in real and financial variables, compared to standard models that assume homogeneity in the leveraging and deleveraging process. Conditional on this model, we consider the implications of macroprudential policies that aim to lean against an excessive credit cycle. In particular, we allow macroprudential authorities to tighten excessive lending to higher leveraged households, whose riskiness had been evaluated too optimistically. We find thata policy that targets only the group of households that most strongly deleveraged after an adverse idiosyncratic housing investment risk shock, is welfare-improving
at social and individual levels, relative to a macroprudential policy which targets all households in the economy.
Original languageEnglish
DOIs
Publication statusPublished - 2017

Publication series

SeriesDepartment of Economics Working Paper Series
Number253

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502046 Economic policy
  • 502047 Economic theory
  • 502018 Macroeconomics

WU Working Paper Series

  • Department of Economics Working Paper Series

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