Macroeconomic Effects of Household Leverage Regulations After the Crisis

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :10 Feb 2021
Date To :10 Feb 2021


This Webinar, based on the paper that assesses the aggregate and distributional effects of policies that seek to reduce mortgage default by limiting a borrower’s debt payment-to-income ratio. The author documents empirically that highly creditworthy borrowers appear constrained by a current institutional debt payment-to-income limit, and proposes a heterogeneous-agent life-cycle model with a competitive mortgage market, endogenous default, and mortgage contract choice consistent with the empirical findings.

In the calibrated model, the author shows, relative to the current uniformly applied debt payment-to-income cap, a policy that combines a more strict debt payment-to-income limit with a costly option to relax the limit lowers default and improves aggregate welfare, particularly for households in the middle of the wealth distribution who have low incomes.

The author/speaker is Malin Hu, from Vanderbilt University