02125cas a2200277 a 4500 AALejournalIMF015801 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513509099 1018-5941 BD-DhAAL BD-DhAAL Nier, Erlend. Debt Service and Default : Calibrating Macroprudential Policy Using Micro Data / Erlend Nier, Radu Popa, Maral Shamloo, Liviu Voinea. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (45 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We provide empirical evidence to support the calibration of a limit on household indebtedness levels, in the form of a cap on the debt-service-to-income (DSTI) ratio, in order to reduce the probability of borrower defaults in Romania. The analysis establishes two findings that are new to the literature. First, we show that the relationship between DSTI and probability of default is non-linear, with probability of default responding to increases in DSTI only after a certain threshold. Second, we establish that consumer loan defaults occur at lower levels of DSTI compared to mortgages. Our results support the recent regulation adopted by the National Bank of Romania, limiting the household DSTI at origination to 40 percent for new mortgages and consumer loans. Our counterfactual analysis indicates that had the limit been in place for all the loans in our sample, the probability of default (PD) would have been lower by 23 percent. Mode of access: Internet Popa, Radu. Shamloo, Maral. Voinea, Liviu. IMF Working Papers; Working Paper ; No. 2019/182 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/182/001.2019.issue-182-en.xml IMF e-Library