New Ways of Modeling Loan-to-Income Distributions and their Evolution in Time - A Probability Copula Approach

Florian Gerth and Grigory Temnov

International Review of Economics & Finance, 2021, vol. 71, issue C, 217-236

Abstract: This paper analyzes the effects of recently introduced macroprudential policies on the financial stability of the Irish economy. We use an empirical approach that is based on the statistical modeling of bivariate loan-income distributions, and find that for First Time Buyers (FTBs) borrowing limits improve financial stability risks; meaning, excessive lending has been effectively restricted. Nonetheless, preliminary evidence for Second Subsequent Buyers (SSBs) shows that financial stability actually worsens. This is because, for the sample at hand, imposing borrowing limits leads lower-income earners to increase their mortgage-borrowing. This finding challenges the one size fits all approach of Irish policy makers.

Keywords: Macro prudential; Financial stability; Mortgages; Probability copula; Bunching; Ireland (search for similar items in EconPapers)
JEL-codes: C15 C46 E58 G01 G21 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:71:y:2021:i:c:p:217-236

DOI: 10.1016/j.iref.2020.08.022

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