The costs of macroprudential deleveraging in a liquidity trap"

Jiaqian Chen, Daria Finocchiaro, Jesper Lindé and Karl Walentin

Review of Economic Dynamics, 2023, vol. 51, 991-1011

Abstract: We study various macroprudential tools and their interaction with monetary policy in a New Keynesian model featuring long-term debt, illiquid housing and an effective lower bound constraint on policy rates. We find that the short-run deleveraging costs of different macroprudential tools – all sized to imply the same reduction in household debt in the medium and long-term – can differ significantly, depending on the state of economy and monetary policy. Specifically, a loan-to-value tightening is more than three times as contractionary as a loan-to-income tightening when debt is high and monetary policy cannot accommodate. (Copyright: Elsevier)

Keywords: Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The costs of macroprudential deleveraging in a liquidity trap (2020)
Working Paper: The Costs of Macroprudential Deleveraging in a Liquidity Trap (2020)
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DOI: 10.1016/j.red.2023.09.005

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