The costs of macroprudential deleveraging in a liquidity trap

Jesper Lindé, Daria Finocchiaro, Karl Walentin and Jack Chen

No 14564, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What are the effects of different borrower-based macroprudential tools when both real and nominal interest rates are low? We study this question in a New Keynesian model featuring long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the long-term costs, in terms of output losses, of all the macroprudential tools we consider are moderate. However, the short-term costs differ substantially between tools. Moreover, the costs vary depending on the current state of economy and monetary policy. Specifically, a loan-to-value tightening is more than three times as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate.

Keywords: Household debt; Zero lower bound; New keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The costs of macroprudential deleveraging in a liquidity trap" (2023)
Working Paper: The costs of macroprudential deleveraging in a liquidity trap (2020)
Working Paper: The Costs of Macroprudential Deleveraging in a Liquidity Trap (2020)
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