Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households

Marco Gross and Javier Población

Economic Modelling, 2017, vol. 61, issue C, 510-528

Abstract: We develop an integrated micro-macro model framework that is based on household survey data for a subset of the EU countries that the Household Finance and Consumption Survey (HFCS) contains. We use the model for the purpose of assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps, and illustrate its outcome for four European countries. The simulation results from the model can be attached to bank balance sheets and their risk parameters to derive the impact of the policy measures on their capital position. The model framework also allows quantifying the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. An assessment as to the comparative efficacy of LTV- versus DSTI-based policy suggests that DSTI caps may be more effective in containing household risk.

Keywords: Household balance sheets; Macro-financial linkages; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: C33 E58 G18 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:61:y:2017:i:c:p:510-528

DOI: 10.1016/j.econmod.2016.12.029

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