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The Impact of Warnings Published in a Financial Stability Report on the Loan to Value Ratio

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  • Andrés Alegría
  • Rodrigo Alfaro
  • Felipe Córdova

Abstract

This paper shows how central bank communications can play a role in macroprudential supervision. We document how specific warnings about real estate markets, published in the Central Bank of Chile’s Financial Stability Reports of 2012, affected bank lending policies. We provide empirical evidence of a rebalancing in the characteristics of mortgage loans granted, with a reduction in the number of mortgage loans with high loan-to-value ratios (LTV), along with an increase in loans with lower LTV ratios.

Suggested Citation

  • Andrés Alegría & Rodrigo Alfaro & Felipe Córdova, 2017. "The Impact of Warnings Published in a Financial Stability Report on the Loan to Value Ratio," Working Papers Central Bank of Chile 798, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:798
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    References listed on IDEAS

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    1. Gael Price, 2014. "How has the LVR restriction affected the housing market: a counterfactual analysis," Reserve Bank of New Zealand Analytical Notes series AN2014/03, Reserve Bank of New Zealand.
    2. Jason Allen & Robert Amano & David P. Byrne & Allan W. Gregory, 2009. "Canadian city housing prices and urban market segmentation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1132-1149, August.
    3. Alejandro Micco & Eric Parrado & Bernardita Piedrabuena & Alessandro Rebucci, 2012. "Housing Finance in Chile: Instruments, Actors, and Policies," Research Department Publications 4779, Inter-American Development Bank, Research Department.
    4. 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 032014, Hong Kong Institute for Monetary Research.
    5. Best, Michael Carlos & Cloyne, James & Ilzetzki, Ethan & Kleven, Henrik Jacobsen, 2015. "Interest rates, debt and intertemporal allocation: evidence from notched mortgage contracts in the United Kingdom," Bank of England working papers 543, Bank of England.
    6. Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
    7. Alejandro Micco & Eric Parrado & Bernardita Piedrabuena & Alessandro Rebucci, 2012. "Housing Finance in Chile: Instruments, Actors, and Policies," Research Department Publications 4779, Inter-American Development Bank, Research Department.
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    Cited by:

    1. Anastasiya Gural & Iryna Lomachynska, 2017. "Fdi And Financial Development As Determinants Of Economic Growth For V4 Countries," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 3(4).
    2. Gambacorta, Leonardo & Murcia, Andres, 2017. "The impact of macroprudential policies and their interaction with monetary policy: an empirical analysis using credit registry," CEPR Discussion Papers 12027, C.E.P.R. Discussion Papers.
    3. Gambacorta, Leonardo & Murcia, Andrés, 2020. "The impact of macroprudential policies in Latin America: An empirical analysis using credit registry data," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    4. Iwegbu, Onyebuchi & Odior, Ernest S.O., 2019. "Macro-Prudential policy instruments, pro-cyclicality of capital and bank lending in Nigeria: From post-global financial crisis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 8(3), pages 205-227.
    5. Leonardo Gambacorta & Andrés Murcia, 2019. "The impact of macroprudential policies and their interaction with monetary policy: an empirical analysis using credit registry data," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Are post-crisis statistical initiatives completed?, volume 49, Bank for International Settlements.
    6. Tomás Gómez & Alejandro Jara & David Moreno, 2020. "International and domestic interactions of macroprudential and monetary policies: the case of Chile," Working Papers Central Bank of Chile 870, Central Bank of Chile.

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