Journal
INTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume 71, Issue -, Pages 217-236Publisher
ELSEVIER
DOI: 10.1016/j.iref.2020.08.022
Keywords
Macro prudential; Financial stability; Mortgages; Probability copula; Bunching; Ireland
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This research analyzes the effects of recently introduced macroprudential policies on the financial stability of the Irish economy. The study found that borrowing limits improve financial stability risks for First Time Buyers, but actually worsen financial stability for Second Subsequent Buyers, challenging the one size fits all approach of policy makers in Ireland.
This paper analyzes the effects of recently introduced macroprudential policies on the financial stability of the Irish economy. We use an empirical approach that is based on the statistical modeling of bivariate loan-income distributions, and find that for First Time Buyers (FTBs) borrowing limits improve financial stability risks; meaning, excessive lending has been effectively restricted. Nonetheless, preliminary evidence for Second Subsequent Buyers (SSBs) shows that financial stability actually worsens. This is because, for the sample at hand, imposing borrowing limits leads lower-income earners to increase their mortgage-borrowing. This finding challenges the one size fits all approach of Irish policy makers.
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