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Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea

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Author Info

  • Deniz Igan
  • Heedon Kang

Abstract

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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/297.

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Length: 35
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/297

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Keywords: Economic models; Household credit; Housing prices; mortgage; real estate; housing finance; mortgage market; mortgage loan; mortgage loans; residential real estate; housing markets; mortgage markets; mortgages; real estate market; real estate markets; mortgage debt; housing policy; mortgage credit; mortgage lending; property purchase; housing finance system; housing construction; homeownership; housing loans; housing units; mortgage payments; housing supply; residential mortgage; real estate prices; mortgage-backed security; real estate loans; construction projects; long-term mortgages; mortgage-backed securities; mortgage decisions; redevelopment;

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References

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  1. Bas B. Bakker & Giovanni Dell'Ariccia & Luc Laeven & Jérôme Vandenbussche & Deniz Igan & Hui Tong, 2012. "Policies for Macrofinancial Stability," IMF Staff Discussion Notes 12/06, International Monetary Fund.
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Citations

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Cited by:
  1. Peter Tillmann, 2012. "Capital Inflows and Asset Prices: Evidence from Emerging Asia," Working Papers, Hong Kong Institute for Monetary Research 182012, Hong Kong Institute for Monetary Research.
  2. Kenneth Kuttner & Ilhyock Shim, 2012. "Taming the Real Estate Beast: The Effects of Monetary and Macroprudential Policies on Housing Prices and Credit," RBA Annual Conference Volume, Reserve Bank of Australia, in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
  3. John Muellbauer, 2012. "When is a Housing Market Overheated Enough to Threaten Stability?," RBA Annual Conference Volume, Reserve Bank of Australia, in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
  4. Crowe, Christopher & Dell’Ariccia, Giovanni & Igan, Deniz & Rabanal, Pau, 2013. "How to deal with real estate booms: Lessons from country experiences," Journal of Financial Stability, Elsevier, Elsevier, vol. 9(3), pages 300-319.
  5. Jerome Vandenbussche & Ursula Vogel & Enrica Detragiache, 2012. "Macroprudential Policies and Housing Price," IMF Working Papers 12/303, International Monetary Fund.
  6. Bank for International Settlements, 2012. "Operationalising the selection and application of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 48.
  7. Ono, Arito & Uchida, Hirofumi & Udell, Gregory & Uesugi, Iichiro, 2013. "A Close Look at Loan-To-Value Ratios: Evidence from the Japanese Real Estate Market," Working Paper Series 19, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  8. Afanasyeva, Elena & Karasulu, Meral, 2013. "Interactions of Monetary and Macroprudential Policies in a Model of the Korean Economy," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79884, Verein für Socialpolitik / German Economic Association.
  9. Eric Wong & Andrew Tsang & Steven Kong, 2014. "How Does Loan-To-Value Policy Strengthen Banks' Resilience to Property Price Shocks - Evidence from Hong Kong," Working Papers, Hong Kong Institute for Monetary Research 032014, Hong Kong Institute for Monetary Research.
  10. Funke, Michael & Paetz, Michael, 2012. "A DSGE-Based Assessment of Nonlinear Loan-to-Value Policies: Evidence from Hong Kong," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 11/2012, Bank of Finland, Institute for Economies in Transition.
  11. Ivo Krznar & James Morsink, 2014. "With Great Power Comes Great Responsibility: Macroprudential Tools at Work in Canada," IMF Working Papers 14/83, International Monetary Fund.
  12. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, Elsevier, vol. 39(C), pages 153-185.
  13. Mick Silver, 2012. "Why House Price Indexes Differ," IMF Working Papers 12/125, International Monetary Fund.

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