How Effective are Macroprudential Policies on the Housing Market: Evidence from Hong Kong SAR

As counter-cycle tools, macroprudential policies have been utilized extensively in Asia to limit credit growth and tame housing price inflation. Utilizing a new policy action dataset and macroeconomic data of Hong Kong SAR, this paper analyzes the effects of macroprudential policies on stabilizing the credit and housing market. To investigate the efficacy of these measures, this paper adopts two empirical approaches. In traditional regressions, results show that loan-to-value (LTV) limit caps and debt-to-income (DTI) ratio have an indiscernible impact on the credit and housing market, and that most of policy actions are of less predictive value. In the difference-in-differences analysis, the loosening LTV policy in response to the Covid-19 crisis does not have the desired magnitude to heat up the credit and housing market, even if the asymmetric effects of tightening and loosening policies are taken into consideration. According to the analysis, heterogeneity in economies influences the effectiveness of macroprudential instruments and certain features in the financial system may make these policy instruments ineffective. Overall, these results shed light on guiding further exploration of the impacts of macroprudential policies in heterogeneous economies.