Template-Type: ReDIF-Paper 1.0
Author-Name: Marco Bardoscia
Author-X-Name-First: Marco
Author-X-Name-Last: Bardoscia
Author-Email: Marco.Bardoscia@bankofengland.co.uk 
Author-Workplace-Name: Bank of England.
Author-Name: Adrian Carro
Author-X-Name-First: Adrian
Author-X-Name-Last: Carro
Author-Email: adrian.carro@bde.es  
Author-Workplace-Name: Banco de España.
Author-Name: Marc Hinterschweiger
Author-X-Name-First: Marc
Author-X-Name-Last: Hinterschweiger
Author-Email: Marc.Hinterschweiger@bankofengland.co.uk  
Author-Workplace-Name: Bank of England.
Author-Name: Mauro Napoletano
Author-X-Name-First: Mauro
Author-X-Name-Last: Napoletano
Author-Email: mauro.napoletano@univ-cotedazur.fr
Author-Workplace-Name: Université Côte D’Azur, CNRS, GREDEG.
Author-Name: Lilit Popoyan	
Author-X-Name-First: Lilit
Author-X-Name-Last:  Popoyan
Author-Email: l.popoyan@qmul.ac.uk
Author-Workplace-Name: Queen Mary University of London.
Author-Name: Andrea Roventini	
Author-X-Name-First: Andrea
Author-X-Name-Last:  Roventini
Author-Email: andrea.roventini@santannapisa.it 
Author-Workplace-Name: Scuola Superiore Sant’Anna.
Author-Name: Arzu Uluc
Author-X-Name-First: Arzu
Author-X-Name-Last: Uluc
Author-Email: Arzu.Uluc@bankofengland.co.uk  
Author-Workplace-Name: Bank of England
Title: The impact of prudential regulations on the UK housing market and economy: Insights from an agent-based model
Abstract: We develop a macroeconomic agent-based model to study the joint impact of borrower- and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) an introduction of a loan-to-income (LTI) cap on mortgages to owner-occupiers; and (iii) a joint introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending, and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income, and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while there is no material impact on inflation and the real interest rate.
Length: 50 pages
Creation-Date: 2024-05
Revision-Date: 
Publication-Status: 
Classification-JEL: C63, D1, D31, E58, G21, G28, R2, R21, R31.
Keywords: Prudential policies; Housing market; Macroeconomy; Agent-based models.
File-URL: http://cgr.sbm.qmul.ac.uk/CGRWP118.pdf
Number: 118
Handle: RePEc:cgs:wpaper:118