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Can Non-Interest Rate Policies Stabilize Housing Markets? Evidence from a Panel of 57 Economies

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  • Kenneth N. Kuttner
  • Ilhyock Shim

Abstract

Using data from 57 countries spanning more than three decades, this paper investigates the effectiveness of nine non-interest rate policy tools, including macroprudential measures, in stabilizing house prices and housing credit. In conventional panel regressions, housing credit growth is significantly affected by changes in the maximum debt-service-to-income (DSTI) ratio, the maximum loan-to-value ratio, limits on exposure to the housing sector and housing-related taxes. But only the DSTI ratio limit has a significant effect on housing credit growth when we use mean group and panel event study methods. Among the policies considered, a change in housing-related taxes is the only policy tool with a discernible impact on house price appreciation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19723.

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Date of creation: Dec 2013
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Handle: RePEc:nbr:nberwo:19723

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Find related papers by JEL classification:
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
  • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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  1. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
  2. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
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  4. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  5. Ito, Takatoshi, 2010. "Monetary Policy and Financial Stability: Is Inflation Targeting Passe?," ADB Economics Working Paper Series 206, Asian Development Bank.
  6. International Monetary Fund, 2011. "Macroprudential Policy; What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 11/238, International Monetary Fund.
  7. Adam S. Posen, 2006. "Why Central Banks Should Not Burst Bubbles," International Finance, Wiley Blackwell, vol. 9(1), pages 109-124, 05.
  8. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
  9. Michael Woodford, 2012. "Inflation Targeting and Financial Stability," NBER Working Papers 17967, National Bureau of Economic Research, Inc.
  10. Ilhyock Shim & Bilyana Bogdanova & Jimmy Shek & Agne Subeltye, 2013. "Database for policy actions on housing markets," BIS Quarterly Review, Bank for International Settlements, September.
  11. International Monetary Fund, 2012. "Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America," IMF Working Papers 12/142, International Monetary Fund.
  12. Pau Rabanal & Christopher W. Crowe & Giovanni Dell'Ariccia & Deniz Igan, 2011. "How to Deal with Real Estate Booms; Lessons From Country Experiences," IMF Working Papers 11/91, International Monetary Fund.
  13. Ceyla Pazarbasioglu & Gudrun Johnsen & Paul Louis Ceriel Hilbers & Inci Ötker, 2005. "Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies," IMF Working Papers 05/151, International Monetary Fund.
  14. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, 09.
  15. Jerome Vandenbussche & Ursula Vogel & Enrica Detragiache, 2012. "Macroprudential Policies and Housing Price; A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe," IMF Working Papers 12/303, International Monetary Fund.
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Cited by:

  1. Blaise Gadanecz & Ken Miyajima & Jörg Urban, 2014. "How might EME central banks respond to the influence of global monetary factors?," BIS Papers chapters, in: Bank for International Settlements (ed.), The transmission of unconventional monetary policy to the emerging markets, volume 78, pages 45-69 Bank for International Settlements.
  2. Christoph Basten & Catherine Koch, 2014. "Higher bank capital requirements and mortgage pricing: evidence from the Counter-Cyclical Capital Buffer," ECON - Working Papers 169, Department of Economics - University of Zurich.
  3. Adrian, Tobias & Liang, J. Nellie, 2014. "Monetary policy, financial conditions, and financial stability," Staff Reports 690, Federal Reserve Bank of New York.
  4. Joshua Aizenman & Yothin Jinjarak, 2013. "Real Estate Valuation, Current Account and Credit Growth Patterns, Before and After the 2008-9 Crisis," NBER Working Papers 19190, National Bureau of Economic Research, Inc.
  5. Christoph Basten & Cathérine Koch, 2014. "The causal effect of house prices on mortgage demand and mortgage supply," ECON - Working Papers 140, Department of Economics - University of Zurich.
  6. Remsperger, Hermann, 2014. "Der makroprudenzielle Komplex: Der Prozess, das Schloss, das Urteil," SAFE White Paper Series 17, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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