Targeted leverage rules have moderate macro impact in France
A Banque de France study finds that borrower-based macroprudential measures (BBMs) in France have statistically significant but economically moderate macroeconomic effects. These targeted regulations primarily affect the riskiest housing credit segments without broad spillovers.
BBMs curb risk, spare GDP
Borrower-based macroprudential measures (BBMs) in France, introduced as DSTI caps and loan maturity limits in 2019 and made binding in 2022, have a targeted impact on housing credit.
A Banque de France study quantifies these effects, showing that BBMs raise housing loan borrowing interest rates by 0.15 to 0.20 percentage points.
They also slow the growth of real outstanding housing credit by up to 0.8 percentage points between 2022 and 2023, a period marked by an 8 percent overall credit fall due to higher interest rates.
House price growth is reduced by 2 to 3 percentage points at its trough.
Crucially, the study finds no significant impact on real residential investment, household income, or real GDP, indicating that BBMs primarily affect the riskiest segments of the housing credit market without generating broad macroeconomic spillovers.
Identifying policy's true impact
Estimating the precise macroeconomic effects of borrower-based measures is challenging because they are often introduced in response to prevailing macro-financial conditions, complicating the identification of their causal aggregate impact.
To overcome this, the Banque de France paper develops a novel mesoeconometric framework.
This approach first identifies lending standards shocks using a structural VAR-IV model.
It then exploits the heterogeneous responses of borrowers to BBMs, particularly those near regulatory thresholds, to isolate the policy-induced component of these shocks.
This two-step methodology bridges macroeconometric and microeconometric analysis, providing a clearer view of the measures' specific contribution.
Precision over broad strokes
This research validates borrower-based measures as effective, targeted tools for enhancing financial resilience in the housing credit market.
By demonstrating their ability to curb risk without broad macroeconomic spillovers, the study offers crucial evidence for policymakers.
The mesoeconometric framework itself provides a valuable, tractable approach for evaluating similar credit constraint policies worldwide.