Working Papers


Macroprudential policy implementation in the mortgage market has generally involved a policy tightening, as policies have been introduced in settings where no such policies previously existed. In this paper we produce rare evidence on an episode of loosening under the macroprudential regime for mortgages. We exploit a reform of the Irish borrower-based measures in 2017 that increased LTV limits for a cohort of First Time Buyers. We show in response to the reform that borrowers bunched at the new maximum LTV of 90, increasing LTVs relative to the counterfactual. We highlight an adjustment mechanism that has important policy implications: we find no evidence that treated borrowers purchased more expensive properties; rather, we find that treated borrowers post lower downpayments after the reform, displaying a preference for cash retention once the opportunity arises. While economic intuition leads one to expect house price amplification after a policy-induced credit loosening, we show that borrowers’ choices to rebalance towards greater cash retention dampened this channel in the Irish case in 2017.

Research Technical Paper Link: The effects of a macroprudential loosening: the importance of borrowers’ choices


This paper investigates the links between alternative growth phases of firms and barriers to financing and investment using firm-level information for a representative sample of EU companies. We propose a novel classification of corporates: high growth (HGEs), stable and declining enterprises. We find that during the phase of high growth, firms are on average more financially constrained. To match their needs for external finance, HGEs are more likely to apply for equity financing. Furthermore, we identify firms with high growth potential. Using survey data, we investigate the barriers to investment activities faced by actual and potential HGEs. Our findings suggest that the most stringent obstacles for actual HGEs are the availability of skilled staff and business regulations, while potential HGEs are blocked by uncertainty about the future. 

EIB Working Paper Version: Financing and obstacles of high growth enterprises



In this paper, I assess how LTV ratio caps on mortgages affect firms' capital structure, investment and employment. I use a unique and comprehensive firm-level dataset for five European countries that recently introduced LTV ratio caps. I highlight the role of the collateral channel in transmitting real estate price shocks to the corporate sector. Specifically, I empirically test that a decline in real estate prices resulting from LTV caps generates losses in the value of assets that corporates can use as collateral, hence reducing their ability to borrow from financial institutions, make investment and create jobs. I provide evidence of this mechanism by showing a significant collateral effect on firms' debt after an LTV shock - secured debt decreases by 1.1 percentage points while on the contrary unsecured debt (i.e. trade credit) increases by 0.8 percentage points. This results imply a substitution effect between secured and unsecured debt after an LTV shock and suggest that macroprudential policies targeting the household sector might have spillover effects in the corporate sector. Moreover, through debt adjustments, companies also change their investment and hiring plans. The LTV shock produces a decrease of around 23 and 1 percentage points in investments and total employment respectively. Finally, I also document a significant degree of heterogeneity in the effect of LTV on firms. The so-called "Zombie" firms react more after the implementation of LTV caps. This result supports the idea that macroprudential policies are able to enhance financial stability, by restricting the leverage of the riskiest agents.


Policy Papers

We analyze the credit conditions facing Irish SMEs in the context of the pandemic recovery. SME trading performance has continued to improve, with turnover and profitability indicators rebounding significantly from pandemic lows. Government policy supports have been large and composed mainly of grants. These supports have provided extensive liquidity support to firms and mitigated debt overhang risks, while also likely weighing on demand in the formal credit market. New bank lending to SMEs has fallen moderately and this has been mainly driven by declines in lending to pandemic-affected sectors. SME demand for credit remains low. Credit supply indicators show little sign of stress, with loan application rejection rates remaining steady. The tapering of government supports to businesses may result in a rise in credit demand over the coming months.

Link to the FS Note :  SME credit conditions in the pandemic recovery

Link to the Central Bank of Ireland Press Release :  21 April 2022 "SME credit conditions in the pandemic recovery" Press Release

Media Coverage: BusinessPlus Ireland



Link: Macroprudential policies to mitigate housing market risks (Report prepared by the CGFS Study Group)