Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191799
Authors: 
Franz, Thorsten
Year of Publication: 
2019
Series/Report no.: 
Bundesbank Discussion Paper 02/2019
Abstract: 
House-purchasing decisions and the possibility of existing homeowners to tap into their housing equity depend decisively on prevailing loan-to-value (LTV) ratios in mortgage markets with borrowing constrained households. Utilizing a smooth transition local projection (STLP) approach, I show that monetary policy shocks in the U.S. evoke stronger reactions in the housing sector in times of high LTV ratios, which, through changes in mortgage lending and mortgage equity withdrawals (MEWs), translate into larger effects of consumption. This result is more pronounced for contractionary shocks, in line with occasionally binding constraints. The strong procyclicality of LTV ratios reconciles these findings with past evidence on a less powerful transmission of monetary policy during recessions.
Subjects: 
monetary policy
LTV ratio
mortgage equity withdrawals
collateral constraints
local projections
non-linear impulse responses
JEL: 
E21
E52
G21
R31
ISBN: 
978-3-95729-547-7
Document Type: 
Working Paper
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