Macroprudential regulation of borrowing standards: a comparative analysis of loan-to-value and loan-to-income policies.

Sammanfattning: Starting from the Two-Agents New-Keynesian DSGE framework presented by Iacoviello and Neri (2010), we re-write the model allowing for a loan-to-income (LTI) constraint in place of a loan-to-value (LTV) constraint. We derive a balanced growth path equilibrium for our model and compare steady-state results as well as dynamic responses to a rich set of shocks between the two macroprudential regulations. The new model characterized by an LTI constraint is estimated through Bayesian methods over a sample of ten observables for the United States ranging from Q1:1965-Q4:2017. We find our LTI model performing marginally better than the LTV model over our data-set as shown by the marginal likelihoods. Additionally, we find evidence of the loan-to-income policy having strong debt curbing effects as well as yielding a contraction in housing owned by constrained agents. We document the relevant role that the data development under the Great Recession and its aftermath has for model properties. Lastly, we conduct policy analysis for different tightness levels of the LTI constraint and compare the dynamics generated under the different model parametrizations. We describe the role played by the pro-cyclical component of the LTI constraint under expansionary and contractionary shocks.