Title

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

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Link to publisher version (DOI)

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