Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households |
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Institution: | 1. University of Munich, Department of Economics, Schackstraße 4, 80539 Munich, Germany;2. University of Munich, Chair of Macroeconomics, Ludwigstraße 28, 80539 Munich, Germany;1. Risk Management at Banco do Brazil, Brazil;2. Catholic University of Brasilia, Graduate Program of Economics, Brazil;1. Czech National Bank, Na P?íkopě 28, 115 03 Prague 1, Czech Republic;2. Charles University Prague, Ovocný trh 3-5, 116 36 Prague 1, Czech Republic;3. University of Finance and Administration Prague, Estonská 500/3, 101 00 Praha 10, Czech Republic |
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Abstract: | We develop an integrated micro-macro model framework that is based on household survey data for a subset of the EU countries that the Household Finance and Consumption Survey (HFCS) contains. We use the model for the purpose of assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps, and illustrate its outcome for four European countries. The simulation results from the model can be attached to bank balance sheets and their risk parameters to derive the impact of the policy measures on their capital position. The model framework also allows quantifying the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. An assessment as to the comparative efficacy of LTV- versus DSTI-based policy suggests that DSTI caps may be more effective in containing household risk. |
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Keywords: | Household balance sheets Macro-financial linkages Macroprudential policy |
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