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The macroeconomic channels of macroprudential mortgage policies


  • Aikman, David

    (Central Bank of Ireland)

  • Kelly, Robert

    (Central Bank of Ireland)

  • McCann, Fergal

    (Central Bank of Ireland)

  • Yao, Fang

    (Central Bank of Ireland)


Borrower-based macroprudential policies, such as limits to loan-to-value and loan-to-income ratios, have grown in popularity in the last decade globally. An understanding of their effects, both intended and unintended, is continuously evolving. In this Note, we discuss the macroeconomic channels though which such measures, like all economic policies, can both benefit and impose costs on the economy. System-wide benefits of such measures arise predominantly through the taming of housing-credit cycles, which lower both the probability and the severity of financial recessions, as well as avoiding resource misallocation. Such crises have been shown to have particularly harmful effects, are followed by slow recoveries and can have persistent adverse macroeconomic effects. The macroeconomic costs of such measures operate through liquidity constraints on renters, and reductions in consumption and construction activity that may arise through dampened house prices and expectations. These macroeconomic costs are more likely to be short-term, and less likely to affect the productive capacity of the economy in the long-run.

Suggested Citation

  • Aikman, David & Kelly, Robert & McCann, Fergal & Yao, Fang, 2021. "The macroeconomic channels of macroprudential mortgage policies," Financial Stability Notes 11/FS/21, Central Bank of Ireland.
  • Handle: RePEc:cbi:fsnote:11/fs/21

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    Cited by:

    1. Arigoni, Filippo & McCann, Fergal & Yao, Fang, 2022. "Mortgage credit and house prices: evidence to inform macroprudential policy," Financial Stability Notes 11/FS/22, Central Bank of Ireland.
    2. Aicha Kharazi & Francesco Ravazzolo, 2023. "Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model," Working Paper series 23-03, Rimini Centre for Economic Analysis.
    3. McCann, Fergal & Durante, Elena, 2022. "The effects of a macroprudential loosening: the importance of borrowers’ choices," Research Technical Papers 9/RT/22, Central Bank of Ireland.
    4. Gaffney, Edward, 2022. "Loan-to-income limits and mortgage lending outcomes," Financial Stability Notes 10/FS/22, Central Bank of Ireland.

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