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Macro Credit Policy and the Financial Accelerator


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.

JEL Classification Codes: C68, E44, E61, G28.

Keywords: credit policy, loan-to-value ratios, borrower-based lending restrictions, macroprudential policy.


Suggested citation: Carlstrom, Charles T., and Timothy S. Fuerst, 2015. “Macro Credit Policy and the Financial Accelerator,” Federal Reserve Bank of Cleveland, Working Paper, no. 15-31.

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