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Heterogeneity and Asymmetric Macroeconomic Effects of Changes in Loan-to-Value Limits

Jasper De Jong and Emmanuel De Veirman

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We estimate the macroeconomic effects of changes in loan-to-value limits using an approach that involves the cross-sectional loan-to-value distribution and does not require that a limit is actually in place. We show that the effects are asymmetric and non-linear as tighter limits constrain a larger fraction of borrowers. Symmetry is a good approximation when the limit is tight but not at other points. We find that an increase in heterogeneity can substantially increase the effects of a change in loan-to-value caps. We document that if one abstracts from borrower heterogeneity, one understates the size of the effects of LTV limits when the limit lies above the average LTV.

Keywords: Credit constraints; macroprudential policy; loan-to-value ratio (search for similar items in EconPapers)
JEL-codes: C32 E21 E32 E44 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ban and nep-mac
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