The costs of macroprudential deleveraging in a liquidity trap
Jiaqian Chen (),
Daria Finocchiaro (),
Jesper Lindé and
Karl Walentin ()
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Jiaqian Chen: IMF
No 389, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)
We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features 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 forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice 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)
Pages: 77 pages
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac, nep-mon and nep-ure
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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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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0389
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