CNB seminar "The Conduct of LTV Policy under Inflationary Shocks"

Prague, 30 July 2025

Margarita Rubio (University of Nottingham)

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Margarita Rubio is an Associate Professor at the School of Economics. Previously, she held a full-time position at the Bank of Spain. She has also worked as a visiting researcher at the US Federal Reserve, the Deutsche Bundesbank, the Central Bank of Luxembourg, the National Bank of Poland, the Bank of Lithuania and the International Monetary Fund. She obtained her PhD in Economics at Boston College (USA). Her research fields are Macroeconomics and Monetary Economics. Her research focuses on Dynamic Stochastic General Equilibrium Models with financial frictions. Her topics of interest include housing markets, housing finance, and its interrelation with business cycles and monetary policy, as well as macroprudential policies and its effects on the real economy, financial stability and welfare.

The Conduct of LTV Policy under Inflationary Shocks

Margarita Rubio and Fang Yao

Abstract: This paper examines loan-to-value (LTV) policy as a macroprudential tool and its interactions with monetary policy in an inflationary environment. The combination of inflation shocks and collateral constraints introduces additional trade-offs for policymakers, emphasizing the need for coordination between macroprudential and monetary policies. Using a DSGE model with collateral constraints, we evaluate the implications of an optimized LTV rule for a welfare-based loss function that incorporates economic and financial stability. Our core finding indicates that, under inflation shocks, policy coordination reduces welfare-based losses compared to a non-coordination regime. In particular, the LTV rule is active (responding to cyclical factors, e.g. house prices) when monetary policy responds weakly to inflation shocks, but the LTV rule becomes passive (only responding to structural factors) when monetary policy chooses to be hawkish towards inflation.

Download: The Conduct of LTV Policy under Inflationary Shocks – presentation (pdf, 491 kB)