A1884
Title: How do borrower- and Lender-based macroprudential policies affect the transmission mechanism of fiscal policy?
Authors: Christian Proano - University of Bamberg (Germany) [presenting]
Philipp Engler - International Monetary Fund (United States)
Lena Draeger - Leibniz University Hannover (Germany)
Lebogang Mateane - University of Cape Town (South Africa)
Abstract: The purpose is to examine how borrower and lender-based macroprudential policies impact the transmission mechanism of fiscal policy. A DSGE model is constructed with a standard fiscal sector and banking sector that offers procyclical lending and thus is subject to different types of regulatory macroprudential policies based on different loan-to-value (LTV) ratios. By means of numerical simulations, various results are found worth highlighting: while in general more stringent macroprudential policies make lending to firms less procyclical, the specific effect of borrower- vs. lender-based regulatory policies depends on the type of shock impacting the economy. While Lender-based LTV ratios seem to be more efficient in restraining credit to firms following a technology shock than borrower-based LTV ratios, the opposite is the case for government spending shocks. Lastly, by increasing the stringency of borrower-based macroprudential policy, policy authorities stabilize macroeconomic volatility that may be driven by financial distress.
