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2019 | OriginalPaper | Chapter

13. Does an Unexpected Loosening in the Loan to Value Ratio Has Any Distributive Effects via the Inequality Channel?

Authors : Eliphas Ndou, Thabo Mokoena

Published in: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Publisher: Springer International Publishing

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Abstract

Evidence indicates that an unexpected loosening in the loan to value ratio (LTV) shock reduces income inequality growth significantly. In addition, evidence from the counterfactual VAR approach analysis shows declining income inequality amplify the increase in house price growth, residential investment growth and credit growth due to LTV shocks. Since income inequality channel is a potent transmitter of loose LTV shocks to the real economic activity, hence policymakers should decisively eliminate the high levels of income inequality as these distort the transmission mechanism of macroprudential policies.

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previous chapter Do Positive Excess Capital Adequacy Ratio Shocks Influence the Income Inequality Dynamics in South Africa?
next chapter Is the Tightening in the National Credit Act a Driver of Growth of Income Inequality?
Footnotes
1
Whether monetary policy and macroprudential regulation increase or decrease income inequality significantly it is an empirical question. This is echoed by the recent editorial in the Journal of money and finance (2017) which focuses on the theme of monetary policy, macroprudential regulation and inequality: AN introduction to special edition. The editorial indicates that the distributional effects of central bank actions which includes macroprudential regulations.
 
2
In addition, studies also show that macroprudential policies in fostering price stability may impact inequality.
 
3
The size of LTV ratios on housing prices on credit costs and inter-generational transfers.
 
Literature
Carpantier, F. F., Olivera, J., & van Kerm, P. (2017, forthcoming). Macroprudential policy and household wealth inequality. Journal of International Money and Finance.
Frost, J., & van Stralen, R. (2017). Macroprudential policy and income inequality. Journal of International Money and Finance, 85, 278–290.CrossRef
Gumata, N., & Ndou, E. (2017). Labour market and fiscal policy adjustments to shocks: The role and implications for price and financial stability in South Africa. Cham, Switzerland: Palgrave Macmillan.
Monin, P. (2017). Monetary policy, macroprudential regulation and inequality (ECP, Discussion note 2017/2).
Punzi, M. T., & Rabitsch, K. (2015). Investor borrowing heterogeneity in a Kiyotaki-Moore style macro model. Economics Letters, 130, 75–79.CrossRef
Metadata
Title
Does an Unexpected Loosening in the Loan to Value Ratio Has Any Distributive Effects via the Inequality Channel?
Authors
Eliphas Ndou
Thabo Mokoena
Copyright Year
2019
Book
Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Print ISBN: 978-3-030-19802-2

Electronic ISBN: 978-3-030-19803-9

Copyright Year: 2019

DOI
https://doi.org/10.1007/978-3-030-19803-9_13