Abstract
Evidence indicates that an unexpected loosening in the loan to value ratio (LTV) shock reduces income inequality growth significantly. In addition, evidence from the counterfactual VAR approach analysis shows declining income inequality amplify the increase in house price growth, residential investment growth and credit growth due to LTV shocks. Since income inequality channel is a potent transmitter of loose LTV shocks to the real economic activity, hence policymakers should decisively eliminate the high levels of income inequality as these distort the transmission mechanism of macroprudential policies.
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Notes
- 1.
Whether monetary policy and macroprudential regulation increase or decrease income inequality significantly it is an empirical question. This is echoed by the recent editorial in the Journal of money and finance (2017) which focuses on the theme of monetary policy, macroprudential regulation and inequality: AN introduction to special edition. The editorial indicates that the distributional effects of central bank actions which includes macroprudential regulations.
- 2.
In addition, studies also show that macroprudential policies in fostering price stability may impact inequality.
- 3.
The size of LTV ratios on housing prices on credit costs and inter-generational transfers.
References
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Ndou, E., Mokoena, T. (2019). Does an Unexpected Loosening in the Loan to Value Ratio Has Any Distributive Effects via the Inequality Channel?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_13
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DOI: https://doi.org/10.1007/978-3-030-19803-9_13
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