Especificación de Requisitos Ontológicos.

In many studies, the LTV is strongly associated with the housing market, housing prices, and mortgage loan activity. LTV is the ratio between debt and the collateral value, which also represents the coverage ratio from households’ debt relative to the market collateral value. Besides functioning as a coverage ratio, the LTV ratio is also useful in controlling credit availability, changing how agents behave, and determining how housing market prices evolve (Antunes and Prado, 2018). In Asian countries, LTV ratio also helps to curb housing price growth, credit growth, and bank leverage (Zhang and Zoli, 2015).

Many studies explore the role of loan-to-value ratio in the economy through its interaction with monetary policy. Some studies have found that LTV ratio affects welfare. For instance, Mendicino and Punzi (2014) study the impact of the interaction of monetary policy and macroprudential policy with social welfare in a two-country economic model.

The macroprudential tool in the study is represented by LTV ratio and shows that it countercyclically responds to house price dynamics. The results reveal that the additional use of a countercyclical LTV ratio in monetary policy operations improves welfare. With regards to this, Mendicino and Punzi (2014) defines welfare as the sum of variation from inflation and output.

In another study, Basto, Gomes, and Lima (2018) evaluate the impact of changes in the LTV ratio on macroeconomic variables in the model with financial frictions and the banking sector. Their findings suggest that permanent LTV ratio tightening leads to a long- term decline in banking lending to the private sector. In contrast, the impact of LTV ratio on macroeconomic variables in the short run depends heavily on the policy design. The study also points out that a temporary change of LTV ratio has milder recessionary effects on lending activities. These results essentially demonstrate that the impact of LTV ratio on an economy improves welfare.

Similar results were also gathered by the study from Punzi and Rabitsch (2018), who study the impact of LTV ratio on the macroeconomy in heterogeneous households. Punzi and Rabitsch (2018) demonstrate that LTV ratio improves welfare regardless of whether households are homogenous or heterogeneous. However, the study found that the implementation of LTV ratio improves welfare to a greater extent when the authority targets only highly leveraged borrowers. The authors define LTV ratio as a countercyclical tool that limits the supply of credit relative to the debt-to-GDP ratio. Hence, this study supports the targeting of LTV ratio to a specific group of borrowers, as doing so improves welfare more than when all types of borrowers are homogenised.

The welfare-improving effect of implementing LTV is also found in the study from Rubio and Carrasco-Gallego (2014). The researchers focus on the implications of macroprudential and monetary policy interactions regarding business cycles and shows that the the interaction between the two policies improves welfare for society and promotes financial sector stability. The authors also define the optimal feedback parameter in the rule for LTV ratio as a macroprudential instrument and nominal interest rate as a monetary policy instrument, and then present the losses under the coordinated and non-coordinated policy regime. LTV ratio is presented as a countercyclical tool and defined as a macroprudential rule that responds to credit growth. Thus, a lower LTV ratio is imposed during a credit boom to restrict excessive credit growth. In their study, Rubio and Carrasco-Gallego (2014) uses a consumption equivalent to measure welfare, which is derived from the second order approximation from the utility function following Mendicino and Pescatori (2007).

Lambertini, Mendicino, and Punzi (2013) explore the effectiveness of countercyclical LTV ratios as a macroprudential tool designed to achieve financial and macroeconomic stabilisation. Lambertini, Mendicino, and Punzi (2013) study the potential gains of monetary and macroprudential policies that lean against house prices and credit cycles. The study reveals that under monetary policy, borrowers and savers are better off when the interest rate optimally responds to credit growth. However, when monetary policy interacts with LTV ratio as a macroprudential instrument, the benefit received from the interaction depends on the degree of welfare heterogeneity among agents. The study shows that an optimal LTV ratio is achieved when it responds countercyclically to credit growth, as this is the condition that most effectively stabilises credit relative to GDP. In contrast, the optimal policy for savers features a constant LTV ratio coupled with an interest rate response to credit growth. LTV ratio rules face a trade-off between savers’ and borrowers’ welfare, as they respond to the GDP of house-prices growth in a countercyclical manner.

Kannan, Rabanal, and Scott (2012) also study the benefits derived from the use of LTV ratio as a macroprudential instrument that interacts with monetary policy. The study demonstrates that using an LTV ratio that is specifically designed to dampen credit market cycles can provide stabilisation benefits under financial shocks and housing demand shocks. However, the study also shows that no benefits are derived from macroprudential policy under productivity shocks. The welfare loss function is assumed to be constructed by the volatility of inflation and the output gap.

In conclusion, studies in the area of macroprudential policy mostly demonstrate that the policy is benefitting the macroeconomy in general. The LTV and CAR are two prominent policy instruments employed in understanding the impact of macroprudential policy. Furthermore, the implementation of mactoptudential policy is examined under its interaction with conventional monetary policy where mostly employs a single macroprudential instrument optimisation.