Prague Economic Papers 2021, 30(3):316-335 | DOI: 10.18267/j.pep.769

Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic

Hana Hejlová ORCID...a,b, Libor Holub ORCID...b, Miroslav Plašilc
a Charles University, Prague, Czech Republic
b Czech National Bank, Prague, Czech Republic
c Prague University of Economics and Business, Prague, Czech Republic

Although the use of residential real estate macroprudential tools has become common in recent years, rigorous approaches to their calibration have been relatively scarce. The goal of this paper is to present an approach to (i) evaluating direct risks to financial stability related to residential real estate exposures, and to (ii) calibrating borrower-based macroprudential measures. First we present a macroprudential indicator of potential losses related to the provision of new mortgage loans. Then we show how to determine risky values of the loan-to-value, loan-to-income and loan service-to-income ratios by per-forming stress tests on the individual new mortgage loans. Finally, we demonstrate the applicability of this approach on the case of the Czech Republic. We conclude by show-ing that simultaneous adoption of several macroprudential measures may enhance their efficiency without imposing higher restrictions on the mortgage market.

Keywords: Macroprudential policy, borrower-based measures, calibration
JEL classification: E32, E58, G21, R21, R31

Received: December 31, 2019; Revised: October 9, 2020; Accepted: December 7, 2020; Prepublished online: April 8, 2021; Published: June 11, 2021  Show citation

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Hejlová, H., Holub, L., & Plašil, M. (2021). Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic. Prague Economic Papers, 30(3), 316-335. doi: 10.18267/j.pep.769
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