The real effects of borrower-based macroprudential policy: Evidence from administrative household-level data

Sjoerd van Bekkum, Marc Gabarro, Rustom M. Irani, José Luis Peydró

Research output: Contribution to journalArticlepeer-review

Abstract

We analyze the effects of borrower-based macroprudential policy at the household level. We exploit administrative Dutch tax and housing records in conjunction with the introduction of a mortgage loan-to-value (LTV) limit. We find that the regulation sharply reduces mortgage leverage with bunching at the LTV limit. While (regulation) affected households reduce total leverage and interest expenses, they also decrease cash balances to satisfy the LTV limit, generating an important solvency-liquidity trade-off. Nevertheless, affected households experience less financial distress after the introduction of the LTV regulation. Moreover, these households experience better liquidity management and smoother consumption following income loss. Overall, our results highlight the key financial stability and real effects of borrower-based macroprudential policy.

Original languageEnglish (US)
Article number103574
JournalJournal of Monetary Economics
DOIs
StateAccepted/In press - 2024

Keywords

  • Consumption smoothing
  • Household leverage
  • LTV
  • Macroprudential policy
  • Mortgage
  • Solvency-liquidity trade-off

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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