Journal of Policy Modeling

Jun 4, 2019

Articles in journals

Gomes, S., Lima, D., Basto, R.

41(1)

66-83

We evaluate the macroeconomic effects of changes in loan-to-value ratios in a multi-country model with financial frictions and a banking sector. Main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction. A euro area wide measure implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.

E58;E61;F42

Macroprudential policy; Loan-to-value ratio; Financial frictions