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Multiple credit constraints and timevarying macroeconomic dynamics

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  • Ingholt, Marcus Mølbak

Abstract

I explore the macroeconomic implications of borrowers facing both loan-to-value (LTV) and debt-service-to-income (DTI) limits, using an estimated DSGE model. I identify when each constraint dominated over the period 1984-2019: LTV constraints dominate in contractions, when house prices are relatively low – and DTI constraints dominate in expansions, when interest rates are relatively high. I also find that DTI standards were relaxed during the mid-2000s’ boom, and that lower DTI limits or higher interest rates, but not lower LTV limits, would have prevented the boom. Finally, county panel data attest to multiple credit constraints as a source of nonlinear dynamics.

Suggested Citation

  • Ingholt, Marcus Mølbak, 2020. "Multiple credit constraints and timevarying macroeconomic dynamics," Working Paper 2020/10, Norges Bank.
  • Handle: RePEc:bno:worpap:2020_10
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    File URL: https://hdl.handle.net/11250/2711211
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    References listed on IDEAS

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    More about this item

    Keywords

    multiple credit constraints; nonlinear estimation of DSGE models; state-dependent credit origination;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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