The costs of macroprudential deleveraging in a liquidity trap

Arbeitspapier

What are the effects of different borrower-based macroprudential tools when both real and nominal interest rates are low? We study this question in a New Keynesian model featuring 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 output losses, of all the macroprudential tools we consider are moderate. However, the short-term costs differ substantially between tools. Moreover, the costs vary depending on the current state of economy and monetary policy. Specifically, a loan-to-value tightening is more than three times as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 389

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies
• Subject: Household debt ; Zero lower bound ; New Keynesian model ; Collateral andborrowing constraints ; Mortgage interest deductibility ; Housing prices

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chen, Jiaqian ; Finocchiaro, Daria ; Lindé, Jesper ; Walentin, Karl
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/232592
• Last update: 10.03.2025, 11:41 AM CET