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Multiple Credit Constraints and Time-Varying Macroeconomic Dynamics

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  • Mølbak Ingholt, Marcus

Abstract

I explore the implications of borrowers facing both loan-to-value (LTV) and debt-service-to-income (DTI) limits, using an estimated DSGE model. I identify when each constraint dominated over the period 1985-2021: The LTV constraint initially dominates, due to loose DTI standards, as well as low house prices around recessions. From 2012, tighter DTI standards and growing house prices have kept the DTI constraint binding. Whether a constraint binds shapes macroeconomic outcomes and the effectiveness of macroprudential tools. Finally, county panel data attest to multiple credit constraints as a source of nonlinear dynamics.

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  • Mølbak Ingholt, Marcus, 2022. "Multiple Credit Constraints and Time-Varying Macroeconomic Dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:dyncon:v:143:y:2022:i:c:s0165188922002081
    DOI: 10.1016/j.jedc.2022.104504
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    3. Carro, Adrian, 2023. "Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).

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    More about this item

    Keywords

    Multiple credit constraints; Nonlinear estimation of DSGE models; State-dependent credit origination;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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