Aggregate Lending Standards and Inequality

Vanessa Schmidt and Hannah Magdalena Seidl

No 2140, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We study the effects of movements in aggregate lending standards on macroeconomic aggregates and inequality. We show in a New Keynesian model with heterogeneous households and housing that a looser loan-to-value (LTV) ratio stimulates housing demand, nondurable consumption, and output. Our model implies that the LTV shock transmits to macroeconomic aggregates through higher household liquidity and a general-equilibrium increase in house prices and labor income. We also show that a looser LTV ratio redistributes housing wealth from the top 10% of the housing wealth distribution to the bottom 50%, indicating an overall decrease in inequality.

Keywords: Heterogeneous agents; incomplete markets; housing; macroprudential policies (search for similar items in EconPapers)
JEL-codes: E12 E21 E44 E52 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2025
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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