Macro Credit Policy and the Financial Accelerator
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.
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Description: Full text
Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 2015-12-21
Pages: 39 pages