Title

New Ways of Modeling Loan-to-Income Distributions and their Evolution in Time - A Probability Copula Approach

RIS ID

145656

Publication Details

Gerth, F. & Temnov, G. 2021, 'New Ways of Modeling Loan-to-Income Distributions and their Evolution in Time - A Probability Copula Approach', International Review of Economics and Finance, vol. 71, pp. 217-236.

Abstract

2020 Elsevier Inc. 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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Link to publisher version (DOI)

http://dx.doi.org/10.1016/j.iref.2020.08.022