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Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea

Author/Editor: Igan, Deniz | Kang, Heedon
Authorized for Distribution: December 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,160KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics.
 
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Series: Working Paper No. 11/297
Subject(s): Business cycles | Economic models | Household credit | Housing prices | Loans | Korea, Republic of
Author's keyword(s): housing markets | mortgage | macroprudential regulation
 
English  
    Published:   December 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011297   Pages:   34
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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