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An agent-based model for the assessment of LTV caps

Author

Listed:
  • Dimitrios Laliotis
  • Alejandro Buesa
  • Miha Leber
  • Javier Población

Abstract

We assess the effects of regulatory caps in the loan-to-value (LTV) ratio for housing mortgages using an agent-based model. Sellers, buyers and banks interact within a computational framework that enables the application of LTV caps to a one-step housing market. We first conduct a simulation exercise; later, we calibrate the probability distributions based on actual European data from the Household Finance and Consumption Survey. In both cases, the application of an LTV cap results in a modified distribution of buyers in terms of property values, bidding prices and properties sold, depending on the probability distributions of the LTV ratio, wealth and debt-to-income ratios considered. The results are of similar magnitude to other studies in the literature embodying other analytical approaches, and they suggest that our methodology can potentially be used to gauge the impact of common macroprudential measures.

Suggested Citation

  • Dimitrios Laliotis & Alejandro Buesa & Miha Leber & Javier Población, 2020. "An agent-based model for the assessment of LTV caps," Quantitative Finance, Taylor & Francis Journals, vol. 20(10), pages 1721-1748, October.
    • Handle: RePEc:taf:quantf:v:20:y:2020:i:10:p:1721-1748
    DOI: 10.1080/14697688.2020.1733058
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    Citations

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    Cited by:

    1. Adrian Carro & Marc Hinterschweiger & Arzu Uluc & J Doyne Farmer, 2023. "Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 386-432.
    2. Bardoscia, Marco & Carro, Adrian & Hinterschweiger, Marc & Napoletano, Mauro & Popoyan, Lilit & Roventini, Andrea & Uluc, Arzu, 2025. "The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
    3. Dirma, Mantas & Karmelavičius, Jaunius, 2025. "Micro-assessment of macroprudential borrower-based measures," Journal of Banking & Finance, Elsevier, vol. 176(C).
    4. Bauermann, Tom & Roos, Michael W. M. & Schaff, Frederik, 2020. "POSA: Policy implementation sensitivity analysis," Ruhr Economic Papers 854, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Mérő, Bence & Borsos, András & Hosszú, Zsuzsanna & Oláh, Zsolt & Vágó, Nikolett, 2023. "A high-resolution, data-driven agent-based model of the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).
    6. Ruben Tarne & Dirk Bezemer, 2023. "ousing affordability in a monetary economy: an agent-based model of the Dutch housing market," IMK Working Paper 222-2023, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Adrian Carro, 2022. "Could Spain be less different? Exploring the effects of macroprudential policy on the house price cycle," Working Papers 2230, Banco de España.
    8. Tarne, Ruben & Bezemer, Dirk & Theobald, Thomas, 2022. "The effect of borrower-specific loan-to-value policies on household debt, wealth inequality and consumption volatility: An agent-based analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    9. Carro, Adrian, 2023. "Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).
    10. Deepeka Garg & Benjamin Patrick Evans & Leo Ardon & Annapoorani Lakshmi Narayanan & Jared Vann & Udari Madhushani & Makada Henry-Nickie & Sumitra Ganesh, 2024. "A Heterogeneous Agent Model of Mortgage Servicing: An Income-based Relief Analysis," Papers 2402.17932, arXiv.org, revised Feb 2024.
    11. Tae-Sub Yun & Hee-Sun Bae & Il-Chul Moon & Deokjong Jeong, 2024. "The relationship between housing finance and inequality," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 19(1), pages 151-191, January.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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