Macroprudential policy and household wealth inequality.

Macroprudential policies, such as caps on loan-to-value (LTV) ratios, have become part of the policy paradigm in emerging markets and advanced countries alike. Given that housing is the most important asset in household portfolios, relaxing or tightening access to mortgages may affect the distribution of household wealth in the country. In a stylised model we show that the final level of wealth inequality depends on the size of the LTV ratio, housing prices, credit cost and the strength of a bequest motive, and therefore it is not possible to predict an unequivocal effect of LTV ratios on wealth inequality. These trade-offs are illustrated with estimations of “Gini Recentered Influence Function” regressions on household survey data from 12 Euro-zone countries that participated in the first wave of the Household Finance and Consumption Survey. The results show that, among the households with active mortgages, high LTV ratios at the time of acquisition are related to high contributions to wealth inequality today, while house price increases are negatively related to inequality contributions. A proxy for the strength of bequest motives tends to be negatively related with wealth inequality, but credit cost does not show a significant link to the distribution of wealth.