Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers and Loan-to-Value Limits

Jaromir Benes, Douglas Laxton and Joannes Mongardini

No 2016/087, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations. We extend the original model by explicitly modeling the housing market. We show how household demand for housing, house prices, and bank mortgages are intertwined in what we call a deadly embrace. Without macroprudential policies, this deadly embrace naturally leads to housing boom and bust cycles, which can be very costly for the economy, as shown by the Global Financial Crisis of 2008-09.

Keywords: WP; house price; bank lending; LTV limit; risk matrix; credit cycle; lending behavior (search for similar items in EconPapers)
Pages: 26
Date: 2016-04-08
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Citations: View citations in EconPapers (10)

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Chapter: Mitigating the deadly embrace in financial cycles: Countercyclical buffers and loan-to-value limits (2018)
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