The impact of prudential regulations on the UK housing market and economy: Insights from an agent-based model

Marco Bardoscia (), Adrian Carro (), Marc Hinterschweiger, Mauro Napoletano, Lilit Popoyan (), Andrea Roventini and Arzu Uluc
Additional contact information
Marco Bardoscia: Bank of England.
Adrian Carro: Banco de España.
Lilit Popoyan: Queen Mary University of London.

No 118, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

Abstract: We develop a macroeconomic agent-based model to study the joint impact of borrower- and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) an introduction of a loan-to-income (LTI) cap on mortgages to owner-occupiers; and (iii) a joint introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending, and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income, and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while there is no material impact on inflation and the real interest rate.

Keywords: Prudential policies; Housing market; Macroeconomy; Agent-based models. (search for similar items in EconPapers)
JEL-codes: C63 D1 D31 E58 G21 G28 R2 R21 R31 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-cmp, nep-hme and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://cgr.sbm.qmul.ac.uk/CGRWP118.pdf

Related works:
Journal Article: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model (2024)
Working Paper: The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cgs:wpaper:118

Access Statistics for this paper

More papers in Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research Contact information at EDIRC.
Bibliographic data for series maintained by Pedro S. Martins ().