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Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic

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  • Hana Hejlová
  • Libor Holub
  • Miroslav Plašil

Abstract

Although the use of residential real estate macroprudential tools has become common in recent years, rigorous approaches to their calibration have been relatively scarce. The goal of this paper is to present an approach to (i) evaluating direct risks to financial stability related to residential real estate exposures, and to (ii) calibrating borrower-based macroprudential measures. First we present a macroprudential indicator of potential losses related to the provision of new mortgage loans. Then we show how to determine risky values of the loan-to-value, loan-to-income and loan service-to-income ratios by per-forming stress tests on the individual new mortgage loans. Finally, we demonstrate the applicability of this approach on the case of the Czech Republic. We conclude by show-ing that simultaneous adoption of several macroprudential measures may enhance their efficiency without imposing higher restrictions on the mortgage market.

Suggested Citation

  • Hana Hejlová & Libor Holub & Miroslav Plašil, 2021. "Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2021(3), pages 316-335.
    • Handle: RePEc:prg:jnlpep:v:2021:y:2021:i:3:id:769:p:316-335
    DOI: 10.18267/j.pep.769
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    References listed on IDEAS

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    1. Christian Upper, 2017. "Macroprudential frameworks, implementation and relationship with other policies," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential frameworks, implementation and relationship with other policies, volume 94, pages 1-5, Bank for International Settlements.
    2. Miroslav Plasil & Michal Andrle, 2019. "Assessing house price sustainability," Occasional Publications - Chapters in Edited Volumes,, Czech National Bank.
    3. Bank for International Settlements, 2017. "Macroprudential frameworks, implementation and relationship with other policies," BIS Papers, Bank for International Settlements, number 94, October –.
    4. Martin Schneider, 2013. "Are Recent Increases of Residential Property Prices in Vienna and Austria Justified by Fundamentals?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 29-46.
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    Cited by:

    1. Martin Hodula & Milan Szabo & Lukas Pfeifer & Martin Melecky, 2022. "Cooling the Mortgage Loan Market: The Effect of Recommended Borrower-Based Limits on New Mortgage Lending," Working Papers 2022/3, Czech National Bank.
    2. Hodula, Martin & Melecký, Martin & Pfeifer, Lukáš & Szabo, Milan, 2023. "Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending," Journal of International Money and Finance, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Macroprudential policy; borrower-based measures; calibration;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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