欧洲央行-瞄准聚焦射击选择适当有效的宏观工具（英）

EUROPEANCENTRALBANK

EUROSYSTEM

WorkingPaperSeries

MicheleAzzone,MaraPirovanoAim,focus,shoot.Thechoiceof

appropriateandeffective

macroprudentialinstruments

No2979

Disclaimer:ThispapershouldnotbereportedasrepresentingtheviewsoftheEuropeanCentralBank(ECB).TheviewsexpressedarethoseoftheauthorsanddonotnecessarilyreflectthoseoftheECB.

ECBWorkingPaperSeriesNo29791

Abstract

Weexaminetheissueoftheappropriateselectionofmacroprudentialinstrumentsaccord-

ingtothevulnerabilitiesidentifiedandthepolicymakers’objectivesusingaversionofthe3DDSGEmodelfollowing

Mendicinoetal.

(2020)and

Hinterschweigeretal.

(2021)cali

-bratedfortheeuroarea.Weconsiderabroadsetofmacroprudentialinstruments,includingbroadandsectoralcountercyclicalcapitalrequirements,LTVandLTIlimitsandassesstheirtransmissionchannelsaswellastheireffectivenessinmitigatingrisingbroadandsectoralvulnerabilities.Wefindthatsectoralinstrumentsaremosteffectivetoincreasebankre-siliencetosectoralrisks,limitingspillovereffects.LTIlimitsaresuperiortoLTVlimitsincontainingthegrowthofmortgagecreditandhouseholdindebtedness.Finally,wefindthatmacroprudentialpolicyisbettersuitedthanmonetarypolicytoaddressemergingrealestate-relatedimbalances.

Keywords:Financialstability,Bankingregulation,Macroprudentialpolicy,Countercyclicalcapitalbuffer,DSGE.

JELClassification:E44,E58,G21,G28

ECBWorkingPaperSeriesNo29792

Non-technicalsummary

TheGreatFinancialCrisisemphasisedtheimportanceofsystemicriskforthestabilityofthefinancialsector,andfosteredtheriseofmacroprudentialpolicyasanewpolicyareaatthegloballevelwithconcreteobjectivesanddedicatedpolicyinstrumentstoaddresssystemicrisk.Macroprudentialpolicyinstrumentsencompasscapitalandborrower-basedmeasures.Themainobjectiveofcapitalrequirementsistoincreasebanks’abilitytoabsorblossesduringdownturns,tocontinuetoprovidecredittotherealeconomy,therebymitigatingtheimpactofcrises.Borrower-basedmeasuresensureprudentlendingstandardsandthesustainabilityofborrowers’debt.Dependingontheircalibration,theycanalsocontributetotamingtherealestatecycle.

Asthemacroprudentialtoolkitgrowsandanincreasingnumberofcountriesimplement(com-binationsof)instruments,understandingtheappropriatenessofdifferentinstruments,theirin-teractionsandhowsuchinteractionscanbeinternalisedinmacroprudentialactionsbecomesofparamountimportance.Notwithstandingadvancesintheliterature,therearestillgapsintheserespects,especiallyinwhatconcernstheappropriateselectionofmacroprudentialinstrumentsaccordingtothevulnerabilitiesidentifiedandthepolicymakers’objective.Withthispaper,wecontributetotheexistingliteratureontheeffectsofmacroprudentialpolicybyconsideringarichmacroprudentialtoolkitincludingbothbroadandsectoralcountercyclicalcapitalrequirementsandtwoborrower-basedinstruments,onecollateral-basedandoneincome-based.Byexplor-ingthe(sometimesoverlapping)channelsthroughwhichdifferentinstrumentstransmittotheirobjectivevariables,wealsoaimtoofferpolicymakersatooltoguidethechoiceofthemostappropriateinstrumenttoachievetheirobjectives.

Weadoptthe”3D”DSGEmodelframeworkfollowing

Clercetal.

(2015)and

Mendicinoetal.

(2020),includingstaggeredinterestspreadsettingasin

Hinterschweigeretal.

(2021),towhichwe

addLTVandLTIlimits,andcalibratethemodelusingeuroareadatarangingbetween2001Q1and2020Q4.First,weaimtoshedlightonthetransmissionmechanismofcapitalandborrower-basedmacroprudentialinstrumentstoachievetheirintendedobjective.Second,weassesstheeffectivenessofdifferenttypesofcapitalandborrower-basedinstrumentsincontainingrisingbroadandsectoralvulnerabilities.Finally,weexaminetherelativeeffectivenessofmonetaryandmacroprudentialpoliciesinstabilisingtheeconomyafterasectoralshockaffectingtherealestatesector.

First,wefindthatcapitalregulationleadstosignificantbenefitsintermsofbankresilience,with

ECBWorkingPaperSeriesNo29793

negligibleeffectsoneconomicactivity.Borrower-basedmeasuressuchasLTVandLTIlimitsimproveborrowers’resilience,howeverattheexpenseofareductioninmortgagecredittothehouseholdsectorandareductionineconomicactivity.Intheshort-term,tighterbroadcapitalrequirementsresultinapermanentimprovementinbankresilience,withonlyshort-livedeffectsoncredit.Sectoralcapitalrequirementsallowtoincreasetheresilienceofthebankingsectortospecificexposures,andthereforetargetspecificrisks,whilelimitingspillovereffectstoothersectors.Apermanenttighteningofborrower-basedlimitsdampensthemortgageloanmarketandreduceshousepricesalbeitonlywithalagasittakessometimeforthesemeasures(whichapplytonewloansonly)topass-throughtothestockofloans.

Secondly,weobservethat,inresponsetoamonetarypolicyshockboostingbothhouseholdandcorporatecredit,broadcountercyclicalcapitalrequirements(i.e.theCCyB)improvebankresilienceandlimitcreditprocyclicalitywithoutcompromisingtheexpansionaryeffectofmone-tarypolicyonGDPandinflation.Amongborrower-basedinstruments,wefindthatLTIlimitsarethemosteffectiveinstrumenttomitigateexuberantmortgagecreditdevelopmentsandtoensurethathouseholddebtremainssustainable,asLTVlimitsbecomelessbindingduetotheexpansionaryeffectoftheshockonhouseprices.Moreover,theresultshighlightthesuperiorityofsectoralcapitalrequirementsovertheirbroadcounterpartsinaddressingvulnerabilitiesinspecificsectors.Weshowthat,intheeventofashockaffectingtheresidentialrealestatesectoronly,sectoralcountercyclicalcapitalrequirementsyieldthedesiredincreaseinbanks’resiliencewhilelimitingadversespilloverstoothersectorsoftheeconomy.Amongborrower-basedmea-sures,LTVlimitsaresuccessfulincontainingtheriseofvulnerabilitiesintheresidentialrealestatesectorcomparedtothebaselinecase,however,theyexhibitadegreeofprocyclicalitywhichunderminestheireffectivenessincontainingthegrowthofmortgagecreditandhouseholdindebtednesscomparedtootherpolicyoptions.Interestingly,LTIlimitsseemtobethemosteffectiveinstrumentsincontainingthegrowthofmortgagecreditandhouseholdindebtedness.

Lastly,weshowthatmacroprudentialpolicyissuperiortomonetarypolicyinaddressingvul-nerabilitiesbuildingupintherealestatesector.Whenthemonetaryauthorityalsoreactstodevelopmentsinhouseprices,thepolicyrateneedstoincreasesubstantiallytobringcomposite(goodsandhouseprice)inflationdown,leadingtomoreseverecostsintermsofGDPduetoastrongereffectonconsumptionandanunnecessarypenalisationofthecorporatesector.

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1Introduction

TheGreatFinancialCrisisemphasisedtheimportanceofsystemicriskforthestabilityofthefinancialsector,andfosteredtheriseofmacroprudentialpolicyasanewpolicyareaatthegloballevelwithconcreteobjectivesanddedicatedpolicyinstrumentstoaddresssystemicrisk.Macroprudentialpolicyinstrumentsincludecapitalbuffersandborrower-basedmeasures.

MacroprudentialcapitalbufferswereputforwardwiththeBaselIIIreformoftheinternationalregulatoryframeworkin2010andenshrinedinEuropeanUnionlawintheCapitalRequirementsDirective(CRDV)andtheCapitalRequirementsRegulation(CRRII).Capitalbufferssuchasthecapitalconservationbuffer,buffersforindividualsystemicallyimportantinstitutionssuchasthoseforGloballySystemicallyImportantInstitutions(G-SII)andOtherSystemicallyImportantInstitutions(O-SII)areofastructuralnatureastheyholdatalltimes.OthercapitalbufferssuchastheCountercyclicalCapitalBuffer(CCyB)and,morerecently,theSystemicRiskBuffer(SyRB)canbereleasedbymacroprudentialauthoritiestimesofcrisistoproviderelieftobanksandsupportingtheminprovidingcredittotheeconomy,therebymitigatingtheimpactofthedownturn.Whilethesearebroadinstruments,applyingtoalldomesticexposures1,theEUlegislationhasrecentlybeenamendedtoforeseetheuseoftheSyRBtotargetsubsetsofbankexposurestospecificsectorssuchas,forexample,mortgageloans.2Currently,14euroareacountrieshaveimplementedapositiveCCyBrate,4haveabroadSyRBinplaceand8haveimplementedthesectoralSystemicRiskBuffer(sSyRB),mostlytargetingresidentialrealestateexposurestoaddresssystemicrisksrelatedtorealestatemarketdevelopments.

Borrower-basedinstrumentsdirectlyaffecttheavailability,termsandconditionsoflendingwhichtypicallyrelatetotheriskinessofloans.Unlikecapitalinstruments,borrower-basedmeasures(BBMs)arenotincludedintheEUharmonisedlegalframework,andtheiruseisgovernedbynationallaw,withdifferentinstitutionalset-upsprevailingacrossMemberStates.Borrower-basedinstrumentslimittheamountthatcanbeborrowedtopurchaseadwellinginrelationtofactorssuchasthevalueofthecollateral(loantovalueratio,LTV),theincomeoftheborrower(loantoincomeratio,LTI)andtheloanservicingcostsinrelationtotheincomeoftheborrower(LSTI).Intheeuroarea,16countrieshaveBBMsinplace,whichareconsideredasstructuralbackstopstoensurethatcreditstandardsremainappropriateandhouseholds’debtsustainable

1TheCCyBappliestoalldomesticcreditexposureswhiletheSyRBappliestoallexposures.

2SeeArticle133oftheCRDV.

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(see

BehnandLang

2023)

.

Thechoiceofimplementingoneoracombinationofmacroprudentialinstrumentscruciallyde-pendsonthenatureoftheidentifiedvulnerabilitiesandonthespecificpolicyobjectives(see

ESRB

2014

and

ESRB

2019)

.Ingeneral,macroprudentialpolicyisusedtostrengthentheresilienceofborrowersandlendersagainsttheconsequencesofrisksmaterialisingaswellastocounterthebuild-upoftheserisks,therebyloweringtheprobabilityoftheirmaterialisation

(Constˆancioetal.

2019)

.However,duetotheircharacteristics,differentinstrumentsarepar-

ticularlysuitedtotargetspecificobjectives(LoDucaetal.

2019)

.BroadcapitalrequirementssuchastheCCyBaimtoincreasethebankingsector’sresiliencetodownturns(i.e.limitbanks’probabilityofdefaultand/ordeleveragingduringacrisis)andcurbexcessivedevelopmentsinbroadcreditgrowthduringtheupturnofthecycle.Sectoralcapitalrequirementsensurethatadequatebuffersareinplacetoabsorblossesthatmayariseinspecificsegmentsofbankloanportfoliosincaseofadversedevelopments.Borrower-basedinstrumentsarebestsuitedtoad-dressflowvulnerabilitiesstemming,forexample,fromexcessivecreditgrowth,deterioratingcreditstandardsandincreasinghouseholdindebtedness.Overall,thesemeasurescontributetosystemresilienceindifferentways.First,byensuringthathouseholdleverageanddebtrepay-mentsaresustainable,theyincreasetheresilienceofborrowersbyreducingtheirprobabilityofdefault.Second,overtime,theycontributetoasaferlendingportfolioofbanksastheaverageriskinessofborrowersdecreases(see

LoDucaetal.

2023)

.Furthermore,withinthecategoryofBBMs,income-basedmeasuressuchasLTIandLSTIlimitsprimarilyimprovetheresilienceofnewborrowers,andthereforebankresilience,whilecollateral-basedmeasuressuchasLTV

limitsprotectagainstRREpricecorrections(Tereanuetal.

2022)

.Besidesincreasingresilience,BBMsmayalsocontributetotamingcreditgrowth(asbanksarenotallowedtosupplyloanstocertainborrowers),limitingthebuild-upofvulnerabilitiesintheshortrunandreducingeconomicvolatilityoverthemediumterm.

Asthemacroprudentialtoolkitgrowsandanincreasingnumberofcountriesimplement(com-binationsof)instruments,understandingtheappropriatenessofdifferentinstruments,theirinteractionsandhowsuchinteractionscanbeinternalisedinmacroprudentialactionsbecomes

ofparamountimportance(LoDucaetal.

2023)

.Notwithstandingadvancesintheliterature,therearestillgapsintheserespects,especiallyinwhatconcernstheappropriateselectionofmacroprudentialinstrumentsaccordingtothevulnerabilitiesidentifiedandthepolicymakers’

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objective.Macroprudentialpolicyisarecentandstillevolvingarea,andpractitionersremainuncertainaboutimplementingmanyofthesepoliciesbecausemacroprudentialmeasuresinher-entlypursuemultipleobjectivessimultaneouslyandinvolveawiderangeofinstruments.Withthispaper,wecontributetotheexistingliteratureontheeffectsofmacroprudentialpolicybyconsideringarichmacroprudentialtoolkitincludingbothbroadandsectoralcountercyclicalcapitalrequirementsandtwoborrower-basedinstruments,onecollateral-basedandoneincome-based.Byexploringthe(sometimesoverlapping)channelsthroughwhichdifferentinstrumentstransmittotheirobjectivevariables,wealsoaimtoofferpolicymakersatooltoguidethechoiceofthemostappropriateinstrumenttoachievetheirobjectives.

Weadoptthe”3D”DSGEmodelframeworkfollowing

Clercetal.

(2015)and

Mendicinoetal.

(2020),includingstaggeredinterestspreadsettingasin

Hinterschweigeretal.

(2021)

.Thesetoffinancialdistortionsincludedinthemodelprovidesarationaletotheintroductionofmacro-prudentialpoliciesbasedoncapitalinstruments,whichcanbedesignedasbroadorsectoral,structuralorcountercyclical.3Inaddition,ashouseholds,firmsandbankscandefault,thisframeworkoffersanaturalmeasureofresilience(theprimaryobjectiveofmacroprudentialpol-icy),namelytheagents’probabilityofdefault.WeincludeLTVandLTIconstraintsactingasapenaltycostonbanksgrantingloanstohouseholds,whoseintensitydependsontheextenttowhichbanksgrantmortgageloanswithmorelenientlendingstandardsthantheregulatorylimitsimposedbythemacroprudentialauthority.Albeitalternative,thismodellingisconsistentwiththereality,wherebyLTVandLTIconstraintsareimposedonthebankingsector(notontheborrowersdirectly):whilehouseholdsmaywishtoobtainamortgageloanwithaLTV/LTIhigherthantheregulatorylimit,bankscannotsatisfytheirdemand.ThepenaltycosthencerepresentstheconsequencesbankshavetofacewhenbreachingregulatoryLTVorLTIlimits,suchasincreasedsupervisoryscrutiny,supervisoryactionsandconsequencestotheirimagevis-`a-visshareholders.

Wecalibratethemodelwitheuroareadataovertheperiodfrom2001Q1to2020Q4andconductmodelsimulationswithathreefoldobjective.First,weaimtoshedlightonthetrans-missionmechanismofcapitalandborrower-basedmacroprudentialinstrumentstoachievetheir

3Thefirstdistortionstemsfrombanks’limitedliabilityandtheexistenceofdepositinsurance,whichencouragesbankstotakeuprisksattheexpenseofthedepositinsuranceagency,whichmayresultincheaperandmoreabundantbanklendingthanwhatasocialplannerwouldfindoptimalwheninternalizingthefullcostsofbankdefault.Theseconddistortionemergesbecausebanks’fundingcostsdependonaggregate,insteadofidiosyncratic,

risk,whichprovidesthemanincentivetotakeexcessiverisk(Clercetal.

2015)

.

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intendedobjective.Specifically,weexaminehowthepermanenttighteningofmacroprudentialinstrumentstransmitstothekeyobjectivevariablesandtheimplicationsoftheensuingmone-tarypolicyreactionforachievingpolicyobjectives.Second,weaimtoassesstheeffectivenessofdifferenttypesofcapitalandborrower-basedinstrumentsincontainingrisingbroadandsec-toralvulnerabilities.Weconsiderabroadshock(i.e.anexpansionarymonetarypolicyshock)thatincreasesbroad-basedvulnerabilitiesandasector-specificshock(i.e.ahousingpreferenceshocks)whichleadstoanincreaseofvulnerabilitiesintherealestatesectorintheformofhighermortgagecreditdemand,housepricesandhouseholdsectorindebtedness.Weexploretheeffec-tivenessofbroadversussectoralinstrumentsinstabilisingtheeconomyaftertheseshocksandinachievingtheirpolicyobjectives.Finally,wecomplementthelatterresultsbyexaminingtherelativeeffectivenessofmonetaryandmacroprudentialpoliciesinstabilisingtheeconomyafterasectoralshockaffectingtherealestatesector.

Fromthemodelsimulationswegatherrelevantinsightsonthethreeresearchquestionsposedabove.First,wefindthatcapitalregulationleadstosignificantbenefitsintermsofbankresilience,withnegligibleeffectsoneconomicactivity.Borrower-basedmeasuressuchasLTVandLTIlimitsimproveborrowers’resilience,howeverattheexpenseofareductioninmortgagecredittothehouseholdsectorandareductionineconomicactivity.Intheshort-term,tighterbroadcapitalrequirementsresultinasignificantimprovementinbankresilience,withonlyshort-livedeffectsoncredit.Sectoralcapitalrequirementsallowtoincreasetheresilienceofthebankingsectortospecificexposures,andthereforetargetspecificrisks,whilelimitingspillovereffectstoothersectors.Apermanenttighteningofborrower-basedlimitsdampensthemortgageloanmarketandreduceshousepricesalbeitonlywithalagasittakessometimeforthesemeasures(whichapplytonewloansonly)topass-throughtothestockofloans.Interestingly,atighteningoftheLTVresultsinlowerborrowerresilienceintheshortrun,asthedropinhousepricesleadssomeexistingmortgagestobeunderwater,promptinghouseholdstodefault.However,inthelong-run,borrowers’resilienceisimproved.

Secondly,weobservethat,inresponsetoamonetarypolicyshockboostingbothhouseholdandcorporatecredit,broadcountercyclicalcapitalrequirements(i.e.theCCyB)improvebankre-silienceandlimitcreditprocyclicalitywithoutcompromisingtheexpansionaryeffectofmonetarypolicyonGDPandinflation.However,wedocumentanimportantdraw-backofacalibrationrulefortheCCyBbasedonthecredit-to-GDPgap.Infact,aftertheexpansionarymonetary

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policyshock,thecredit-to-GDPgapturnsnegative,asGDPisincreasingmorethancredit,leadingtoadeclineincapitalrequirements.WeshowthatanalternativeruleforthesettingoftheCCyBwherebythemacroprudentialauthorityreactstothedeviationoftotalcreditfromthesteadystatedoesamuchbetterjobinimprovingbankresilienceandreducingtheprocycli-calityofcreditintheeventofamonetarypolicyshock.Amongborrower-basedinstruments,wefindthatLTIlimitsarethemosteffectiveinstrumenttomitigateexuberantmortgagecreditdevelopmentsandtoensurethathouseholddebtremainssustainable,asLTVlimitsbecomelessbindingduetotheexpansionaryeffectoftheshockonhouseprices.Moreover,theresultshigh-lightthesuperiorityofsectoralcapitalrequirementsovertheirbroadcounterpartsinaddressingvulnerabilitiesinspecificsectors.Weshowthat,intheeventofashockaffectingtheresidentialrealestatesectoronly,sectoralcountercyclicalcapitalrequirementsyieldthedesiredincreaseinbanks’resiliencewhilelimitingadversespilloverstoothersectorsoftheeconomy.AmongBBMs,LTVlimitsaresuccessfulincontainingtheriseofvulnerabilitiesintheresidentialrealestatesectorcomparedtothebaselinecase,however,theyexhibitadegreeofprocyclicalitywhichunderminestheireffectivenessincontainingthegrowthofmortgagecreditandhouseholdindebtednesscomparedtootherpolicyoptions.Interestingly,LTIlimitsseemtobethemosteffectiveinstrumentsincontainingthegrowthofmortgagecreditandhouseholdindebtedness.

Lastly,weshowthatmacroprudentialpolicysuperiortomonetarypolicyinaddressingvul-nerabilitiesbuildingupintherealestatesector.Whenthemonetaryauthorityalsoreactstodevelopmentsinhouseprices,thepolicyrateneedstoincreasesubstantiallytobringcomposite(goodsandhouseprice)inflationdown,leadingtomoreseverecostsintermsofGDPduetoastrongereffectonconsumptionandanunnecessarypenalisationofthecorporatesector.Hence,weconfirmmacroprudentialpolicy’sroleasfirstlineofdefenceforfinancialstability.

2Literaturereview

Theanalysisoftheeffectivenessandinteractionbetweenmacroprudentialpolicyinstrumentsisastillexpandingresearchfield.Inrecentyears,agrowingstrandofliteraturehasexaminedthetransmissionchannelsofcapitalandborrower-basedinstrumentsinaDSGEmodellingframe-workandassessedtheireffectivenessinstabilisingtheeconomyintheeventofshocks.While,inthefollowing,wereviewthepapersmostcloselyrelatedtoours,

GrodeckaandFinocchiaro

(2018)presentanextensivereviewoftheliteratureontheimpactofmacroprudentialpolicy.

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Regardingcapitalrequirements,overall,theliteraturefindsthatahigherlevelofcapitalincreasesbanks’resilienceandreducestheeconomiccostsoffinancialcrises(seeforexample

Geralietal.

2010,

AngeloniandFaia

2013,

Clercetal.

2015)

.Focusingspecificallyoncountercyclicalcapitalrequirementrules,theliteraturehasfocusedonexaminingtheoptimaldesignsofpolicyrulesfortheCCyB.Whiletheoptimaldesignoftherulemaydependonspecificshocks,countercyclicalcapitalregulationisfoundtohavesignificantadvantagesintermsofeconomicstabilisationand

aggregatewelfare(Lozejetal.

2022,

Aguilaretal.

2019,

Faria-eCastro

2021)

.Inarecentstudy,

Limaetal.

2023

establishastrategiccomplementaritybetweencyclicalandstructuralcapitalrequirements,whichisduetothefactthattheyreinforceeachothers’policygoals.Studiesfocusingonbroadversussectoralcapitalrequirementsaremorescarce.

ChenandColumba

(2016)focusonsectoralriskweightsandshowthathigherriskweightsonhouseholdmortgages

lowerhouseholddebt.

Castro

(2019)examinestheimpactofintroducingbroadversussectoral

countercyclicalcapitalbuffersinanestimatedDSGEmodelforBrazil,andfindsthatasectoralCCyBisaflexibleinstrumentthatallowsachievingbettermacroeconomicstabilizationintermsofvariancesofcredit,totalcapitalrequirementandcapitaladequacyratio.

RegardingBBMs,

MendicinoandPunzi

(2014)findthatacountercyclicalLTVrulethatre

-spondstochangesinhousepriceslimitsleverageanddomesticborrowingcapacityduringperi-odsofexpansionandfacilitatestheuseofcreditduringrecessionaryperiods,helpingborrowerstosmoothconsumptionovertime.

AlpandaandZubairy

(2017)examinetheeffectivenessofdif

-ferentpoliciesonhouseholdindebtedness,andfindthatmortgageinterestratedeductionsandLTVlimitsarethemosteffective,thelatterattheexpenseofloweroutputandaggregatecon-sumption.4

Greenwald

(2018)and

Grodecka

(2020)considerbothcollateralandincome-based

limitsandconcludethatthelatteraremoreeffectivethanLTVlimitsinlimitingboom-bustcyclesandincontainingtheriseinhouseholdindebtedness.

Grodecka

(2020)alsofindsthat

LTVlimitsmayactuallyresultinhigherrealestatepricesinequilibrium.

Alimitednumberofstudiesexaminecapitalandborrower-basedmeasuresjointly.

Chenand

Columba

(2016)considerLTVlimitsandsectoralriskweights,however,thefocusoftheir

analysisisontheireffectivenessvis-`a-vismonetarypolicy.

Millardetal.

(2024)examinethe

impactofbroadbankcapitalrequirementsandDSTIlimitsonmacroeconomicoutcomesandfindthatcapitalrequirementsaretheoptimaltooltomitigatetheimpactoffinancialshocks,

4Finocchiaroetal.

(2016)alsostudythesamepolicies,howeverfocusingonhowtheyaffectdifferenthouseholds

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whileDSTIlimitsareoptimalfollowingahousingdemandshock,astheydisconnectthehousingmarketfromtherealeconomyandreducingthevolatilityofinflation.Finally,usinganestimatedversionofthe3DDSGEmodelfortheUK,

Hinterschweigeretal.

(2021)assessthewelfare

implicationsofcombinationsofmacroprudentialinstruments,includingLTVlimitsonmortgagelendingandsectoralcapitalrequirem