The Macroeconomic Effects of Regulating Household Leverage: A Mesoeconometric Approach

We develop a mesoeconometric framework to quantify the macroeconomic effects of policies that target household leverage. We focus on borrower-based macroprudential measures (BBMs), which regulate lending standards at loan origination. The approach first identifies lending standards shocks in a structural VAR-IV framework and then exploits heterogeneous borrower responses to BBMs to isolate the policy-induced component of those shocks. We apply this framework to France, where caps on debt-service-to-income (DSTI) ratios and loan maturities were introduced in 2019. We show that lending standards shocks have persistent and economically meaningful effects on housing and credit dynamics. By contrast, the BBM-induced component has statistically significant but economically moderate effects. In credit markets, the measure raises borrowing interest rates by around 0.15 to 0.20 percentage points and slows the growth of real outstanding housing credit by up to 0.8 percentage points between 2022 and 2023, a period during which outstanding credit fell by as much as 8%, mainly as a result of higher interest rates. The measure also reduces house price growth by 2 to 3 percentage points at its trough. We find no significant impact on real residential investment, household income, or real GDP. These results indicate that BBMs primarily affect the riskiest component of the housing credit market without generating broad macroeconomic spillovers, highlighting their role as targeted tools for enhancing financial resilience.