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LTV vs. DTI Constraints: When Did They Bind, and How Do They Interact?

Marcus Ingholt

No 866, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: I document that the elasticity of mortgage loan origination with respect to house prices is highly dependent on the change in personal incomes and vice versa, using U.S. county-level panel data. I rationalize this in a model with two occasionally binding borrowing constraints: a loan-to-value (LTV) constraint and a debt-service-to-income (DTI) constraint. A Bayesian estimation of the model infers when the LTV and DTI constraints have been binding during 1975-2017, and which shocks that caused them to bind. A macroprudential experiment shows that countercyclical LTV limits cannot dampen mortgage debt growth in expansions, but DTI limits can.

New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
Date: 2018
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