Working Paper: Multiple credit constraints and time-varying macroeconomic dynamics
Working paper - May 2019 - No. 137
I build a DSGE model where households face a loan-to-value (LTV) constraint and a debt-service-to-income (DTI) constraint. From an estimation of the model, I infer when each constraint was binding over the 1975-2017 timespan in the U.S. I also infer that DTI standards were relaxed during the mid-2000s credit boom. In the light of this, the boom could have been avoided by tighter DTI limits, but not by tighter LTV limits. The role of multiple credit constraints for the emergence of nonlinear dynamics is corroborated by county panel data.