Loan-to-Value Ratio and Uncertainty

We study a fundamental difference between the Bernanke, Gertler, and Gilchrist (BGG, 1999) model and the models with collateral constraints of Kiyotaki and Moore (1997) and Iacoviello (2005). The BGG model implies that the loan-to-value (LTV) ratio is mainly determined by factors affecting borrowers' default risk, such as uncertainty, while the collateral-constraint models assume that the LTV ratio is either fixed or follows an exogenous process. This paper provides an empirical test for the implications of the models by investigating whether the LTV ratio responds to a change in uncertainty regarding the macroeconomy, financial markets, economic policy, and housing market