Macro Credit Policy and the Financial Accelerator

39 Pages Posted: 22 Dec 2015

See all articles by Charles T. Carlstrom

Charles T. Carlstrom

Federal Reserve Bank of Cleveland

Timothy S. Fuerst

University of Notre Dame

Date Written: 2015-12-21

Abstract

This paper studies macro credit policies within the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that the efficacy of cyclical taxes on LTV ratios depends upon the nature of the underlying loan contract. If the loan contract contains equity-like features such as indexation to aggregate conditions, then there is little role for cyclical taxation. But if the loan contract is not indexed to aggregate conditions, then there are substantial gains to procyclical taxes on LTV ratios.

Keywords: credit policy, loan-to-value ratios, borrower-based lending restrictions

JEL Classification: C68, E44, E61

Suggested Citation

Carlstrom, Charles T. and Fuerst, Timothy S., Macro Credit Policy and the Financial Accelerator (2015-12-21). FRB of Cleveland Working Paper No. 1531, Available at SSRN: https://ssrn.com/abstract=2707051

Charles T. Carlstrom (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States
216-579-2294 (Phone)
216-579-3050 (Fax)

Timothy S. Fuerst

University of Notre Dame ( email )

Notre Dame, IN 46556
United States

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