Work

The real effects of borrower-based macroprudential policy: Evidence from administrative household-level data

Year: 2024

Type: article

Abstract: We analyze the effects of borrower-based macroprudential policy at the household level. We exploit administrative Dutch tax and housing records in conjunction with the introduction of a mortgage loan-to-value (LTV) limit. We find that the regulation sharply reduces mortgage leverage with bunching at the LTV limit. While (regulation) affected households reduce total leverage and interest expenses, they also decrease cash balances to satisfy the LTV limit, generating an important solvency-liquidity trade-off. Nevertheless, affected households experience less financial distress after the introduction of the LTV regulation. Moreover, these households experience better liquidity management and smoother consumption following income loss. Overall, our results highlight the key financial stability and real effects of borrower-based macroprudential policy.

Source: Journal of Monetary Economics

DOI: 10.1016/j.jmoneco.2024.103574

Authors: Sjoerd van Bekkum, Marc Gabarro, Rustom M. Irani, José-Luis Peydró

Institutions: Erasmus University Rotterdam, Center for Economic and Policy Research, University of Illinois Urbana-Champaign, Imperial College London

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: No poverty

Open Access status: hybrid

Estimated APC paid: $3,870