The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model

Marco Bardoscia, Adrian Carro, Marc Hinterschweiger, Mauro Napoletano, Lilit Popoyan, Andrea Roventini and Arzu Uluc
Additional contact information
Marco Bardoscia: BANK OF ENGLAND
Adrian Carro: BANCO DE ESPAÑA AND UNIVERSITY OF OXFORD
Lilit Popoyan: UNIVERSITY OF LONDON AND SCUOLA SUPERIORE SANT’ANNA
Arzu Uluc: BANK OF ENGLAND

No 2502, Working Papers from Banco de España

Abstract: We develop a macroeconomic agent-based model to study the joint impact of borrower and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) the introduction of a loan-to-income (LTI) cap on mortgages to owner-occupiers; and (iii) the introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while having no material impact on inflation and the real interest rate.

Keywords: prudential policies; housing market; macroeconomy; agent-based models (search for similar items in EconPapers)
JEL-codes: C63 D1 D31 E58 G21 G28 R2 R21 R31 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2024-01
New Economics Papers: this item is included in nep-cmp
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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 25/Files/dt2502e.pdf First version, January 2025 (application/pdf)

Related works:
Journal Article: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model (2024)
Working Paper: The impact of prudential regulations on the UK housing market and economy: Insights from an agent-based model (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2502

DOI: 10.53479/38913

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