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Working Paper

Macro Credit Policy and the Financial Accelerator

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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.
Topics
Econometrics modeling and forecasting
Bank policy and regulation
12.18.2015ISSN 2573-7953 WP 15-31DOI 10.26509/frbc-wp-201531
Keywords credit policy, loan-to-value ratios, borrower-based lending restrictions, macroprudential policy
JEL Classification Codes C68, E44, E61, G28

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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. https://doi.org/10.26509/frbc-wp-201531