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Aggregate Lending Standards and Inequality

Author

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  • Vanessa Schmidt
  • Hannah Seidl

Abstract

We study the effects of movements in aggregate lending standards on macroeconomic aggregates and inequality. We show in a New Keynesian model with heterogeneous households and housing that a looser loan-to-value (LTV) ratio stimulates housing demand, nondurable consumption, and output. Our model implies that the LTV shock transmits to macroeconomic aggregates through higher household liquidity and a general-equilibrium increase in house prices and labor income. We also show that a looser LTV ratio redistributes housing wealth from the top 10% of the housing wealth distribution to the bottom 50%, indicating an overall decrease in inequality.

Suggested Citation

  • Vanessa Schmidt & Hannah Seidl, 2025. "Aggregate Lending Standards and Inequality," Berlin School of Economics Discussion Papers 0071, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0071
    DOI: 10.48462/opus4-5915
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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