The Costs of Macroprudential Deleveraging in a Liquidity Trap

Jiaqian Chen, Daria Finocchiaro, Jesper Lindé and Karl Walentin

No 2020/089, IMF Working Papers from International Monetary Fund

Abstract: 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 loan-to-income tightening when debt is high and monetary policy cannot accommodate.

Keywords: WP; lower bound; transmission mechanism; long-term debt; Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices; DSTI constraint; LTV tightening; LTV constraint; LTI economy; Housing; Consumption; Global (search for similar items in EconPapers)
Pages: 66
Date: 2020-06-12
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=49494 (application/pdf)

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)
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:imf:imfwpa:2020/089

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().