Loan-to-Value Shocks and Housing in the Production Function

Vivek Sharma

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Using a Two-Agent RBC model with time-varying shock to loan-to-value (LTV) ratios, I show that including housing (real estate or land) in the entrepreneurial production function has profound implications for results. In a model in which housing does not play a role as a production input, an LTV tightening has starkly different effects compared to a model in which it is a factor in the production process. In a setup devoid of a role for housing as a production input, differently from the results in the current literature, an LTV tightening leads to a spike in housing price at impact and a lesser fall afterwards. Other macroeconomic variables such as investment and output fall more at lower initial LTV ratios than at higher steady state LTV ratios. The findings of this paper indicate that housing plays an important role in shaping macroeconomic effects of LTV shocks.

Keywords: Loan-to-Value (LTV) Shocks; Housing in the Production Function; Macroeconomic Fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg, nep-mac and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... 2/62_2023_sharma.pdf

Related works:
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:een:camaaa:2023-62

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().