New Ways of Modeling Loan-to-Income Distributions and their Evolution in Time - A Probability Copula Approach
Publication Name
International Review of Economics and Finance
Abstract
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.
Open Access Status
This publication is not available as open access
Volume
71
First Page
217
Last Page
236
Funding Sponsor
University of Kent