IMF Working Papers

Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers and Loan-to-Value Limits

By Jaromir Benes, Douglas Laxton, Joannes Mongardini

April 8, 2016

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Jaromir Benes, Douglas Laxton, and Joannes Mongardini. Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers and Loan-to-Value Limits, (USA: International Monetary Fund, 2016) accessed December 11, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations. We extend the original model by explicitly modeling the housing market. We show how household demand for housing, house prices, and bank mortgages are intertwined in what we call a deadly embrace. Without macroprudential policies, this deadly embrace naturally leads to housing boom and bust cycles, which can be very costly for the economy, as shown by the Global Financial Crisis of 2008-09.

Subject: Bank credit, Banking, Housing, Housing prices, Macroprudential policy instruments

Keywords: Bank lending, Credit cycle, House price, Lending behavior, LTV limit, Risk matrix, WP

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2016/087

  • Stock No:

    WPIEA2016087

  • ISBN:

    9781484323052

  • ISSN:

    1018-5941