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Macroeconomic implications of mortgage loan requirements: an agent-based approach

  • Bulent Ozel
  • Reynold Christian Nathanael
  • Marco Raberto
  • Andrea TeglioEmail author
  • Silvano Cincotti
Regular Article

Abstract

It is a well-known fact that the housing market, with its associated mortgage securities, plays a crucial role in modern economies. The recent crisis of 2007, triggered by the U.S. real estate bubble, confirms this key role and suggests the importance of regulating mortgage lending. This paper investigates these issues by designing a housing market with a linked mortgage lending instrument in the Eurace agent-based model. Our results show that the presence of a housing market in the model has relevant macroeconomic implications, driven mainly by the additional amount of endogenous money injected into the economy by new mortgages. This additional money generally helps to support and stabilize aggregated demand, thus improving the main economic indicators. However, if the regulation of mortgage lending is too lax, involving an increase in the debt-service-to-income ratio (DSTI), then the additional supply of mortgages no longer enhances macroeconomic performance, and the stability of the economic system is undermined. Based on a number of recent discussions, a regulation of stock control that targets households’ net wealth (a stock), rather than income (a flow) is designed and analyzed. The results show that regulation of stock control can be combined effectively with DSTI to increase the stability of the housing market and the economy as a whole. Interestingly, the regulation based on stock control also directly affects mortgage distribution among households, avoiding excessive concentration. From a policy perspective, our results suggest that the use of a mild flow control regulation, coupled with a stricter stock control measure, fosters sustainable growth and eases first-time buyers access to the housing market, encouraging homeownership.

JEL Classification

C63 Computational Techniques, Simulation Modeling E32 Business Fluctuations, Cycles E51 Money Supply, Credit, Money Multipliers G21 Banks, Depository Institutions, Micro Finance Institutions, Mortgages 

Notes

References

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Economics DepartmentUniversitat Jaume ICastellonSpain
  2. 2.DIME-CINEF, Università di GenovaGenoaItaly
  3. 3.Economics DepartmentCa’ Foscari University of VeniceVeniceItaly

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