A literature review on ex-ante and ex-post analysis of the implications of borrower-based macroprudential measures
Series: Occasional Papers. 2524.
Author: Adrián Carro, Jorge E. Galán, Enric Martorell and Raquel Vegas
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Abstract
This paper presents a comprehensive literature review on the effects of borrower-based macroprudential measures (BBMs)—such as loan-to-value (LTV), debt-to-income (DTI) and debt-service-to-income (DSTI) limits—with a particular focus on their effectiveness in mitigating systemic risks in housing markets. The review synthesizes findings from both empirical and theoretical studies. The evidence shows that BBMs are effective tools for addressing systemic risks arising from household over-indebtedness and real estate market imbalances. Empirical studies indicate that stricter mortgage lending standards significantly reduce the probability of default, moderate credit growth during expansionary phases and enhance the resilience of the financial system. Theoretical models further suggest that BBMs help stabilize credit cycles, lower the likelihood of financial crises and mitigate adverse welfare effects during downturns. However, they also highlight potential redistributive consequences. Overall, the evidence supports the inclusion of BBMs as core instruments within the macroprudential policy framework, while underscoring the need for flexible design and ongoing evaluation based on granular data and advanced modeling to ensure their effectiveness and minimize unintended effects.