Do Macroprudential Measures Increase Inequality? Evidence from the Euro Area Household Survey

49 Pages Posted: 22 Jun 2021

See all articles by Oana Maria Georgescu

Oana Maria Georgescu

European Central Bank (ECB)

Diego Vila Martín

European Central Bank (ECB)

Date Written: June, 2021

Abstract

Borrower-based macroprudential (MP) policies - such as caps on loan-to-value (LTV) ratios and debt-service-to-income (DSTI) limits - contain the build-up of systemic risk by reducing the probability and conditional impact of a crisis. While LTV/DSTI limits can increase inequality at introduction, they can dampen the increase in inequality under adverse macroeconomic conditions. The relative size of these opposing effects is an empirical question. We conduct counterfactual simulations under different macroeconomic and macroprudential policy scenarios using granular income and wealth data from the Households Finance and Consumption Survey (HFCS) for Ireland, Italy, Netherlands and Portugal. Simulation results show that borrower-based measures have a moderate negative welfare impact in terms of wealth inequality and a negligible impact on income inequality.

JEL Classification: G21, G28, G51

Suggested Citation

Georgescu, Oana Maria and Martín, Diego Vila, Do Macroprudential Measures Increase Inequality? Evidence from the Euro Area Household Survey (June, 2021). ECB Working Paper No. 2021/2567, Available at SSRN: https://ssrn.com/abstract=3870018

Oana Maria Georgescu (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Diego Vila Martín

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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