Macroprudential policy and household wealth inequality

Working Paper 2017-442

Abstract

Macroprudential policies, such as caps on loan-to-value (LTV) ratios, have become part of the policy paradigm in emerging markets and advanced countries alike. Given that housing is the most important asset in household portfolios, relaxing or tightening access to mortgages may affect the distribution of household wealth in the country. In a stylised model we show that the final level of wealth inequality depends on the size of the LTV ratio, housing prices, credit cost and the strength of a bequest motive; ultimately with no unequivocal effect of LTV ratios on wealth inequality. These trade-offs are illustrated with estimations of “Gini Recentered Inuence Function” regressions on household survey data from 12 eurozone

Authors: Jean-Francois Carpantier, Javier Olivera, Philippe Van Kerm.