Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers and Loan-to-Value Limits
IMF Working Papers, April 8, 2016
Source details
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- Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers and Loan-to-Value Limits
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Bibliographic details
- Authors: Jaromir Benes, Douglas Laxton, Joannes Mongardini
- Published: April 8, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484323052.001
Research objective and model
- Presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations.
- Extends the original model by explicitly modeling the housing market.
- Focuses on interactions among household demand for housing, house prices, and bank mortgages, termed the "deadly embrace."
Key findings and dynamics
- Without macroprudential policies, the deadly embrace naturally leads to housing boom and bust cycles.
- Housing boom and bust cycles can be very costly for the economy, as illustrated by the Global Financial Crisis of 2008-09.
Policy instruments analyzed
- Countercyclical buffers.
- Loan-to-Value (LTV) limits.
Subject areas and keywords
- Subject: Bank credit, Banking, Housing, Housing prices, Macroprudential policy instruments
- Keywords: bank lending, credit cycle, house price, lending behavior, LTV limit, risk matrix, WP
Content in this bundle
- _wp1687 - References