Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios
Ruediger Bachmann () and
Authors registered in the RePEc Author Service: Sebastian K. Rüth ()
No 12024, CEPR Discussion Papers from C.E.P.R. Discussion Papers
What are the macroeconomic consequences of changing aggregate lending standards in residential mortgage markets, as measured by loan-to-value (LTV) ratios? In a structural VAR, GDP and business investment increase following an expansionary LTV shock. Residential investment, by contrast, falls, a result that depends on the systematic reaction of monetary policy. We show that, historically, the Fed tended to respond directly to expansionary LTV shocks by raising the monetary policy instrument, and, as a result, mortgage rates increase and residential investment declines. The monetary policy reaction function in the US appears to include lending standards in residential markets, a finding we confirm in Taylor rule estimations. Without the endogenous monetary policy reaction residential investment increases. House prices and household (mortgage) debt behave in a similar way. This suggests that an exogenous loosening of LTV ratios is unlikely to explain booms in residential investment and house prices, or run ups in household leverage, at least in times of conventional monetary policy.
Keywords: Cholesky identification; loan-to-value ratios; monetary policy; residential investment; structural VAR; Taylor rules (search for similar items in EconPapers)
JEL-codes: E30 E32 E44 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
Working Paper: Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios (2017)
Working Paper: SYSTEMATIC MONETARY POLICY AND THE MACROECONOMIC EFFECTS OF SHIFTS IN LOAN-TO-VALUE RATIOS (2017)
Working Paper: Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12024
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=12024
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ..
Series data maintained by (). This e-mail address is bad, please contact .