Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 389: The costs of macroprudential deleveraging in a liquidity trap

Jiaqian Chen (), Daria Finocchiaro (), Jesper Lindé () and Karl Walentin ()
Additional contact information
Jiaqian Chen: IMF
Daria Finocchiaro: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Jesper Lindé: IMF and CEPR
Karl Walentin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: 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 a loan-to-income tightening when debt is high and monetary policy cannot accommodate.

Keywords: Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices

JEL-codes: E52; E58

77 pages, June 1, 2020

Full text files 

no.-389-the-costs-of...a-liquidity-trap.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0389This page generated on 2024-09-13 22:16:58.