EconPapers    
Economics at your fingertips  
 

House price dynamics, optimal LTV limits and the liquidity trap

Andrea Ferrero (), Richard Harrison () and Benjamin Nelson ()
Additional contact information
Andrea Ferrero: University of Oxford
Benjamin Nelson: RCM

No 969, Bank of England working papers from Bank of England

Abstract: The global financial crisis prompted the rapid development of macro-prudential frameworks and an increased reliance on borrower-based policy tools, which influence the demand for credit. This paper studies the optimal design of one such tool, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.

Keywords: Monetary and macro-prudential policy; financial crisis; zero lower bound (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 G28 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2022-03-25
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... e-liquidity-trap.pdf Full text (application/pdf)

Related works:
Working Paper: House Price Dynamics, Optimal LTV Limits and the Liquidity Trap (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0969

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().

 
Page updated 2023-02-07
Handle: RePEc:boe:boeewp:0969