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The impact of macroprudential policy on inequality and implications for inclusive financial stability

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  • Park, Sungmin
  • Kim, Young-Han

Abstract

A loan-to-value ratio (LTV) ceiling is a macroprudential policy that limits households' mortgage borrowing to a fraction of the value of a house. Our empirical evidence suggests that LTV ceilings have a significant impact on widening household wealth inequality. Using South Korean survey data from 9,844 households over the 2017–2019 period and a regression discontinuity design (RDD), we estimate that the tightening of the LTV ceiling by 10 percentage points reduced the average log net worth of the poorest quintile of households by 1.3 (a -73% change in net worth) over two years relative to the control households. Meanwhile, the measure did not affect the net worth of wealthier households.

Suggested Citation

  • Park, Sungmin & Kim, Young-Han, 2023. "The impact of macroprudential policy on inequality and implications for inclusive financial stability," Journal of Banking & Finance, Elsevier, vol. 146(C).
    • Handle: RePEc:eee:jbfina:v:146:y:2023:i:c:s0378426622002965
    DOI: 10.1016/j.jbankfin.2022.106716
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    Cited by:

    1. Simona Malovana & Jan Janku & Martin Hodula, 2023. "Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution," Working Papers 2023/3, Czech National Bank.

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    More about this item

    Keywords

    Macroprudential policy; Wealth inequality; Household finance; Inclusive financial stability; Regression discontinuity design;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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