Take it to the limit? The effects of household leverage caps.
With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Abstract:
We analyze the effects of borrower-based macroprudential policy at the household level. We exploit administrative Dutch tax and housing records, and the introduction of a mortgage loan-to-value (LTV) limit. The regulation reduces homeownership. Among (regulation) affected-households, mortgage leverage falls with bunching at the LTV limit. While affected-households reduce total leverage and interest expenses, they also reduce cash balances to satisfy the limit, generating a solvency-liquidity tradeoff. Moreover, affected-households experience less financial distress, and better liquidity management and smoother consumption following income loss. Finally, tracking individual households’ long-term wealth accumulation, the LTV regulation reduces wealth’s volatility, notably, by improving left-tail returns.
About Prof. Rustom M. Irani:
Prof. Rustom M. Irani is an Assistant Professor of Finance.
Language: English
This is a free seminar. Registration is mandatory.
The seminar will be held in person.
Cold lunches are provided to registered participants.
Supported by the Luxembourg National Research Fund (FNR) 17984041