The macroeconomic effects of the regulatory LTV and LTI ratios in the Central Bank of Ireland's DSGE model

Matija Lozej and Ansgar Rannenberg

No 04/EL/17, Economic Letters from Central Bank of Ireland

Abstract: We use the Central Bank of Ireland’s DSGE model to investigate the introduction of regulatory loan-to-value and loan-to-income ratios in the mortgage market in 2015, which form part of the Central Bank’s macroprudential measures. The main finding is that while the measures dampen economic activity in the short run, they bring benefits in the medium and long run. Household leverage declines, which lowers the default rate on bank loans. The economy as a whole deleverages and foreign debt decreases significantly.

Date: 2017-03
New Economics Papers: this item is included in nep-ban, nep-cba and nep-dge
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