Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market

Adrian Carro (), Marc Hinterschweiger, Arzu Uluc and J. Farmer
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Adrian Carro: Banco de España

No 976, Bank of England working papers from Bank of England

Abstract: We develop an agent-based model of the UK housing market to study the impact of macroprudential policy experiments on key housing market indicators. The heterogeneous nature of this model enables us to assess the effects of such experiments on the housing, rental and mortgage markets not only in the aggregate, but also at the level of individual households and sub-segments, such as first-time buyers, homeowners, buy-to-let investors, and renters. This approach can therefore offer a broad picture of the disaggregated effects of financial stability policies. The model is calibrated using a large selection of micro-data, including data from a leading UK real estate online search engine as well as loan-level regulatory data. With a series of comparative statics exercises, we investigate the impact of (i) a hard loan-to-value limit, and (ii) a soft loan-to-income limit, allowing for a limited share of unconstrained new mortgages. We find that, first, these experiments tend to mitigate the house price cycle by reducing credit availability and therefore leverage. Second, an experiment targeting a specific risk measure may also affect other risk metrics, thus necessitating a careful calibration of the policy to achieve a given reduction in risk. Third, experiments targeting the owner-occupier housing market can spill over to the rental sector, as a compositional shift in home ownership from owner-occupiers to buy-to-let investors affects both the supply of and demand for rental properties.

Keywords: Agent-based model; housing market; macroprudential policy; borrower-based measures; buy-to-let sector (search for similar items in EconPapers)
JEL-codes: D10 D31 E58 R20 R21 R31 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2022-04-22
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market (2023)
Working Paper: Heterogeneous Effects and Spillovers of Macroprudential Policy in an Agent-Based Model of the UK Housing Market (2022)
Working Paper: Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market (2022)
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