Analysis reveals macro-economic effects from changes in loan-to-value limits in individual economies, suggesting significant implications for households.
A prominent approach to estimating the macro‐economic effects of loan‐to‐value (LTV) limits involves the use of cross‐country panel regressions. This approach assumes that the effects of changes in LTV limits are constant across economies and across time. In this paper, we develop and implement an approach that uses the micro‐level LTV distribution to compute the effect of changes in the limit in an individual economy. Our approach reflects the intuition that when a limit binds for a larger fraction of households, changes in the limit have larger macro‐economic effects.
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Veirman et al. (2025) studied this question.
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