{"title":"House Price Dynamics, Optimal LTV Limits and the Liquidity Trap","authors":"Andrea Ferrero, Richard Harrison, Benjamin Nelson","doi":"10.1093/restud/rdad040","DOIUrl":null,"url":null,"abstract":"Abstract This paper studies the optimal design of a macro-prudential instrument, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The analysis accounts for both an effective lower bound on the nominal interest rate and an upper bound on the ability of LTV limits to stimulate credit demand. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.","PeriodicalId":48449,"journal":{"name":"Review of Economic Studies","volume":"24 1","pages":"0"},"PeriodicalIF":5.9000,"publicationDate":"2023-04-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Economic Studies","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1093/restud/rdad040","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
Abstract This paper studies the optimal design of a macro-prudential instrument, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The analysis accounts for both an effective lower bound on the nominal interest rate and an upper bound on the ability of LTV limits to stimulate credit demand. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.
期刊介绍：
Founded in 1933 by a group of young British and American economists, The Review of Economic Studies aims to encourage research in theoretical and applied economics, especially by young economists. Today it is widely recognised as one of the core top-five economics journals. The Review is essential reading for economists and has a reputation for publishing path-breaking papers in theoretical and applied economics. The Review is committed to continuing to publish strong papers in all areas of economics. The Editors aim to provide an efficient and high-quality review process to the Review''s authors. Where articles are sent out for full review, authors receive careful reports and feedback. Since 1989 The Review has held annual May Meetings to offer young students in economics and finance the chance to present their research to audiences in Europe.
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