Heterogeneity and Asymmetric Macroeconomic Effects of Changes in Loan-to-Value Limits

Jasper de Jong, Emmanuel de Veirman
2019 Social Science Research Network  
We estimate the macroeconomic e¤ects of changes in loan-to-value limits using an approach that involves the cross-sectional loan-to-value distribution and does not require that a limit is actually in place. We show that the e¤ects are asymmetric and non-linear as tighter limits constrain a larger fraction of borrowers. Symmetry is a good approximation when the limit is tight but not at other points. We ...nd that an increase in heterogeneity can substantially increase the e¤ects of a change in
more » ... oan-to-value caps. We document that if one abstracts from borrower heterogeneity, one understates the size of the e¤ects of LTV limits when the limit lies above the average LTV. JEL codes: C32, E21, E32, E44
doi:10.2139/ssrn.3388199 fatcat:3i5etaw7jvculnu43hkdbdpkcy