Overborrowing, Financial Crises and 'Macro-prudential' Taxes

Bianchi, Javier; Mendoza, Enrique G.

doi:10.3386/w16091

Cited by 170 publications

(189 citation statements)

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“…Other key factors determining the response of household debt to monetary policy are the slope of the New Keynesian Phillips curve and adjustment costs in housing. A steeper New Keynesian Phillips curve results in a larger decline in in ‡ation, t , and hence, a smaller decline trade-o¤; in particular, the externality due to the fact that house prices a¤ect the borrowing constraint of all borrowers may lead to overborrowing and this may lead to higher volatility in output (Bianchi and Mendoza, 2010). We do not explore the optimal policy implications of this externality.…”

Section: Introductionmentioning

confidence: 99%

“…We do not explore the optimal policy implications of this externality. 7 According to the 2011 American Housing Survey of the Census Bureau, about 80 percent of all new mortgage loans are …xed rate, and the rest are mostly standard adjustable-rate mortgages (i.e., "5/1 ARMs," which have a …xed rate in the …rst …ve years of the loan, and their interest rate adjusts once a year thereafter). Also, about 37 percent of all outstanding mortgages are re…nancing of a previous mortgage loan, and most re…nancings are undertaken to reduce interest payments.…”

Section: Introductionmentioning

confidence: 99%

“…This feature captures the notion that a signi…cant share of new mortgage loans in the real world are adjustable-rate, and some …xed-rate mortgages are re…nanced before the end of their amortization period. 7 New mortgage loans …nance not only the residential investment of borrower households, but also partly their consumption expenditures, by allowing them to withdraw a portion of their existing home equity each period. This feature is key to dilute the e¤ectiveness of regulatory LTV in addressing household debt, since LTV policy mainly a¤ects new regular mortgages, but not home equity loans taken on top of existing debt.…”

Section: Introductionmentioning

confidence: 99%

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Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Alpanda

Zubairy

2017

European Economic Review

108

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. iii Terms of use: Documents in AbstractIn this paper, we build a dynamic stochastic general-equilibrium model with housing and household debt, and compare the effectiveness of monetary policy, housing-related fiscal policy, and macroprudential regulations in reducing household indebtedness. The model features long-term fixed-rate borrowing and lending across two types of households, and differentiates between the flow and the stock of household debt. We use Bayesian methods to estimate parameters related to model dynamics, while level parameters are calibrated to match key ratios in the U.S. data. We find that monetary tightening is able to reduce the stock of real mortgage debt, but leads to an increase in the household debt-toincome ratio. Among the policy tools we consider, tightening in mortgage interest deduction and regulatory loan-to-value (LTV) are the most effective and least costly in reducing household debt, followed by increasing property taxes and monetary tightening. Although mortgage interest deduction is a broader tool than regulatory LTV, and therefore potentially more costly in terms of output loss, it is effective in reducing overall mortgage debt, since its direct reach also extends to home equity loans. JEL classification: E52, E62, R38 Bank classification: Housing; Transmission of monetary policy; Financial system regulation and policies; Economic models RésuméDans cette étude, les auteurs construisent un modèle d'équilibre général dynamique et stochastique intégrant le logement et la dette des ménages, et comparent l'efficacité de diverses mesures (politique monétaire, fiscalité relative au logement et réglementation macroprudentielle) pour réduire l'endettement des ménages. Le modèle incorpore les emprunts et les prêts à taux fixe à long terme se rapportant à deux types de ménages, et établit une distinction entre les flux de crédit et l'encours de la dette. Les auteurs utilisent des méthodes bayésiennes pour estimer les paramètres liés à la dynamique du modèle, et les paramètres de niveau sont calibrés de manière à ce qu'ils correspondent aux ratios clés calculés à partir de données sur l'économie américaine. Ils constatent que le resserrement de la politique monétaire peut induire une baisse de l'encours de la dette hypothécaire réelle, mais entraîner une augmentation du ratio de la dette au revenu des ménages. Parmi les mesures prises en considération, la réduction de la déduction fiscale au titre des intérêts hypothécaires et l...

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Alpanda

Zubairy

2017

European Economic Review

108

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“…Examples are Benigno et al (2011a), Bianchi (2011, Bianchi and Mendoza (2010) and Jeanne and Korinek (2010). The novelty of this paper with respect to this literature resides in the focus on monetary policy and on the interplay between Fisher's debt deflation and nominal wage rigidities.…”

mentioning

confidence: 99%

Financial crises and exchange rate policy

Fornaro

2015

Journal of International Economics

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This paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and Fisherian deflation. The goal is to evaluate the performance of alternative exchange rate policies in sudden stopprone economies. The key element of the analysis is a pecuniary externality arising from frictions in the international credit markets, which creates a trade-off between price and financial stability. The main result is that the appropriate exchange rate policy sustains the value of collateral and access to international credit markets during financial crises.

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“…Figure 1 provides an overview of these trends (1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008), tracing the short run and long run external debt to GDP ratios, share of foreign 1 Bhattacharya and Gale (1987) investigated this externality in banking, and Caballero and Krishnamurthy (2004) in international finance. The use of Pigovian schemes to deal with financial externalities has been recognized also in the context a closed economy [see Adrian andBrunnermeier (2009), Korinek (2009), Bianchi and Mendoza (2010) Intriguingly, only about half of the EMs relied on depleting their international reserves as part of the adjustment mechanism. To gain further insight, we compared the pre-crisis IR/GDP ratio of countries that experienced sizable depletion of their IR, to that of countries that did not, and find different patterns between the two groups.…”

Section: Ir As Self-insurance During a Crisis: The Crisis Experience mentioning

confidence: 99%