The Interaction of Borrower-Targeted Macroprudential Tools in the Irish Mortgage Market: A Baseline Multi-Agent Approach

20 Pages Posted: 24 Nov 2020

See all articles by Andrea Gurgone

Andrea Gurgone

University of Bamberg - Department of Economics; Complexity Lab in Economics - CLE, Catholic University of Milan

Date Written: October 10, 2020

Abstract

Lax credit conditions and speculative behaviors can combine to bring about leveraged real estate bubbles that pose a threat to financial stability. This risk can be pushed away by the adoption of proper macroprudential polices. Borrower-based macroprudential tools, namely loan-to-value and debt-to-income ratios, are designed to dampen the procyclicality of credit and to enhance the resilience of financial institutions. By putting a ceiling to borrowing the financial sustainability of mortgages can be improved for borrowers and lenders. This paper studies the interaction of the two instruments employing an agent-based model calibrated on the Irish mortgage market. I construct several policy scenarios grounded on residential loan data to run counterfactual experiments and explore alternative settings of macroprudential policy. This approach provides granular artificial data about the distribution of loan-to-value and debt-to-income ratios at origination, credit, and house prices.

Keywords: Agent-based model, financial stability, LTV, LTI, macroprudential policy, mortgage market

JEL Classification: C63, E58, G21, R30

Suggested Citation

Gurgone, Andrea and Gurgone, Andrea, The Interaction of Borrower-Targeted Macroprudential Tools in the Irish Mortgage Market: A Baseline Multi-Agent Approach (October 10, 2020). Available at SSRN: https://ssrn.com/abstract=3708904 or http://dx.doi.org/10.2139/ssrn.3708904

Andrea Gurgone (Contact Author)

Complexity Lab in Economics - CLE, Catholic University of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

University of Bamberg - Department of Economics ( email )

Bamberg 96045
Germany

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