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Economic effects of a debt-to-income constraint in Finland: Evidence from Aino 3.0 model

Author

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  • Kärkkäinen, Samu
  • Nyholm, Juho

Abstract

We analyze the economic effects of a debt-to-income constraint for the Finnish economy. Our benchmark is a DSGE model which is designed to capture the most prominent features of the Finnish economy and is calibrated using Finnish macroeconomic data. The baseline model incorporates a loan-to-value type of constraint for new mortgage loans. We study the effects of replacing this with a neutral DTI constraint, neutral meaning that the level of the constraint is set so that it would not alter the mortgage loans-to-GDP ratio in the long run. We find that the replacement would have only small long run effects on the economy, and it would poten-tially reduce the volatility of several variables associated with the housing markets.

Suggested Citation

  • Kärkkäinen, Samu & Nyholm, Juho, 2021. "Economic effects of a debt-to-income constraint in Finland: Evidence from Aino 3.0 model," BoF Economics Review 1/2021, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:12021
    as

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    References listed on IDEAS

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    Keywords

    Suomen Pankki; Aino 3.0; DSGE; mallit; Suomi;
    All these keywords.

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