Research examines the macroeconomic impact of the Central Banks macroprudential regulations

06 March 2017 Press Release
  • Research examines the impact of the mortgage measures on the economy.
  • Long term impact of the measures is a reduction in household debt, which reduces risk.

An Economic Letter by Matija Lozej and Ansgar Rannenberg entitled “The macroeconomic effects of the regulatory LTV and LTI ratios in the Central Bank of Ireland's DSGE model” has been published

The Economic Letter investigates the economy wide effect of the mortgage measures, which introduced loan to value (LTV) and loan to income (LTI) requirements in 2015. The authors estimate the impact using the Central Bank of Ireland’s Dynamic Stochastic General Equilibrium model.

The research found that:

  • While the measures may dampen economic activity in the short run, they bring benefits in the medium and long term.
  • Household leverage declines, which lowers the default rate on bank loans.
  • The Irish economy as a whole deleverages and foreign debt decreases significantly.