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Macro Credit Policy and the Financial Accelerator
Author(s) -
CARLSTROM CHARLES T.,
FUERST TIMOTHY S.
Publication year - 2016
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12362
Subject(s) - loan , financial accelerator , macro , economics , equity (law) , monetary economics , indexation , loan to value ratio , financial system , finance , monetary policy , dynamic stochastic general equilibrium , mortgage insurance , casualty insurance , computer science , law , political science , programming language , insurance policy
This paper studies macro credit policies within the 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.