{
  "title": "The Costs of Macroprudential Deleveraging in a Liquidity Trap",
  "publication": "IMF Working Papers, June 12, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/06/12/the-costs-of-macroprudential-deleveraging-in-a-liquidity-trap-49494",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Summary and main finding",
      "content": "- We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low.\n- Our model features long-term debt, housing transaction costs and a zero-lower bound constraint on policy rates.\n- We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate.\n- Even so, the short-term costs differ dramatically between alternative tools.\n- 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."
    },
    {
      "heading": "Model features and scope",
      "content": "- New Keynesian environment with both real and nominal interest rates low.\n- Long-term debt is explicitly modeled.\n- Housing transaction costs are included.\n- Zero-lower bound constraint on policy rates is imposed.\n- Focus on borrower-based macroprudential tools (examples in keywords: DSTI constraint, LTI economy, LTV constraint, LTV tightening)."
    },
    {
      "heading": "Key findings and comparisons",
      "content": "- Long-term costs (measured as forgone consumption) of the considered macroprudential tools: moderate.\n- Short-term costs: vary substantially across tools.\n- Comparative quantitative statement preserved from source: \"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.\""
    },
    {
      "heading": "Policy implications and transmission",
      "content": "- Choice of macroprudential instrument matters for short-term macroeconomic outcomes when the policy rate is at the zero lower bound.\n- Loan-to-value (LTV) tightening has significantly stronger short-run contractionary effects than loan-to-income (LTI) tightening under high-debt, zero-lower-bound conditions.\n- Consideration of interaction between macroprudential measures and monetary policy space is crucial when designing deleveraging strategies.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/06/12/the-costs-of-macroprudential-deleveraging-in-a-liquidity-trap-49494"
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    "Authors: Jiaqian Chen, Jiawen Tang, Jesper Lindé, Hyeon",
    "Published: June 12, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513546803.001",
    "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.",
    "New Keynesian environment with both real and nominal interest rates low.",
    "Long-term debt is explicitly modeled.",
    "Housing transaction costs are included.",
    "Zero-lower bound constraint on policy rates is imposed.",
    "Focus on borrower-based macroprudential tools (examples in keywords: DSTI constraint, LTI economy, LTV constraint, LTV tightening).",
    "Long-term costs (measured as forgone consumption) of the considered macroprudential tools: moderate.",
    "Short-term costs: vary substantially across tools.",
    "Comparative quantitative statement preserved from source: \"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.\"",
    "Choice of macroprudential instrument matters for short-term macroeconomic outcomes when the policy rate is at the zero lower bound.",
    "Loan-to-value (LTV) tightening has significantly stronger short-run contractionary effects than loan-to-income (LTI) tightening under high-debt, zero-lower-bound conditions.",
    "Consideration of interaction between macroprudential measures and monetary policy space is crucial when designing deleveraging strategies.",
    "**Working Paper**"
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