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11 - When Is Macroprudential Policy Effective?

Published online by Cambridge University Press:  09 August 2018

By
Chris McDonald
Edited by
Paul Mizen ,
Margarita Rubio  and
Philip Turner
Paul Mizen
Affiliation:
University of Nottingham
Margarita Rubio
Affiliation:
University of Nottingham
Philip Turner
Affiliation:
Universität Basel, Switzerland
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Summary

Previous studies have shown that limits on loan-to-value (LTV) and debt-to-income (DTI) ratios can stabilize the housing market, and that tightening these limits tends to be more effective than loosening them. This paper examines whether the relative effectiveness of tightening versus loosening macroprudential measures depends on where in the housing cycle they are implemented. I find that tightening measures have greater effects when credit is expanding quickly and when house prices are high relative to income. Loosening measures seem to have smaller effects than tightening, but the difference is negligible in downturns. Loosening being found to have small effects is consistent with where it occurs in the cycle.

Type
Chapter
Information
Macroprudential Policy and Practice , pp. 248 - 274
Publisher: Cambridge University Press
Print publication year: 2018

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References

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