The Costs Of Macroprudential Deleveraging In A Liquidity Trap
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The Costs of Macroprudential Deleveraging in a Liquidity Trap
Author | : Mr.Jiaqian Chen |
Publisher | : International Monetary Fund |
Total Pages | : 66 |
Release | : 2020-06-12 |
Genre | : Business & Economics |
ISBN | : 1513546805 |
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We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features 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 forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to loan-to-income tightening when debt is high and monetary policy cannot accommodate.