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Multiple credit constraints and timevarying macroeconomic dynamics

Marcus Mølbak Ingholt

No 2020/10, Working Paper from Norges Bank

Abstract: I explore the macroeconomic implications of borrowers facing both loan-to-value (LTV) and debt-service-to-income (DTI) limits, using an estimated DSGE model. I identify when each constraint dominated over the period 1984-2019: LTV constraints dominate in contractions, when house prices are relatively low – and DTI constraints dominate in expansions, when interest rates are relatively high. I also find that DTI standards were relaxed during the mid-2000s’ boom, and that lower DTI limits or higher interest rates, but not lower LTV limits, would have prevented the boom. Finally, county panel data attest to multiple credit constraints as a source of nonlinear dynamics.

Keywords: multiple credit constraints; nonlinear estimation of DSGE models; state-dependent credit origination (search for similar items in EconPapers)
JEL-codes: C33 D58 E32 E44 (search for similar items in EconPapers)
Pages: 44 + 31 pages
Date: 2020-08-28
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg and nep-mac
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Handle: RePEc:bno:worpap:2020_10