Macro Credit Policy and the Financial Accelerator

Charles Carlstrom and Timothy Fuerst

No 1531, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper studies macro credit policies within the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that the efficacy of cyclical taxes on LTV ratios depends upon the nature of the underlying loan contract. If the loan contract contains equity-like features such as indexation to aggregate conditions, then there is little role for cyclical taxation. But if the loan contract is not indexed to aggregate conditions, then there are substantial gains to procyclical taxes on LTV ratios.

Keywords: credit policy; loan-to-value ratios; borrower-based lending restrictions (search for similar items in EconPapers)
JEL-codes: C68 E44 E61 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-12-21
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-mon
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https://doi.org/10.26509/frbc-wp-201531 Persistent link
https://www.clevelandfed.org/-/media/project/cleve ... cial-accelerator.pdf Full text (application/pdf)

Related works:
Journal Article: Macro Credit Policy and the Financial Accelerator (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1531

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DOI: 10.26509/frbc-wp-201531

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