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Aggregate and Distributional Impacts of LTV Policy: Evidence from China's Micro Data

Author

Listed:
  • Kaiji Chen
  • Qing Wang
  • Tong Xu
  • Tao Zha

Abstract

Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mortgage expansion disproportionately increased the share of mortgages to middle-aged homeowners with high education, while their consumption growth declined persistently. To interpret these empirical findings, we develop a quantitative model and identify that homeowners' trade-up of their primary homes as speculative housing investment is a key channel for a change in LTV policy to exert aggregate and distributional impacts on mortgage markets. Our cross-city evidence provides empirical support for this channel.

Suggested Citation

  • Kaiji Chen & Qing Wang & Tong Xu & Tao Zha, 2020. "Aggregate and Distributional Impacts of LTV Policy: Evidence from China's Micro Data," NBER Working Papers 28092, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28092
    Note: AP EFG ME PE
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    Cited by:

    1. Deng, Yuanyuan & Fang, Hanming & Hanewald, Katja & Wu, Shang, 2023. "Delay the Pension Age or Adjust the Pension Benefit? Implications for Labor Supply and Individual Welfare in China," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1192-1215.
    2. Francesco Caloia, 2022. "Borrower-Based Measures, House Prices and Household Debt," Working Papers 738, DNB.
    3. Rongsheng Tang & Yang Tang & Rongjie Zhang, 2024. "The Aggregate and Distributional Impacts of Residence Policy Relaxation," The Journal of Real Estate Finance and Economics, Springer, vol. 69(2), pages 343-376, August.
    4. Fan, Gang-Zhi & Li, Han & Li, Jiangyi & Zhang, Jian, 2022. "Housing property rights, collateral, and entrepreneurship: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 143(C).
    5. Hu, Zhining, 2022. "Six types of government policies and housing prices in China," Economic Modelling, Elsevier, vol. 108(C).
    6. Wang, Yin-Chi & Liao, Pei-Ju & Wang, Ping & Yip, Chong Kee, 2024. "To stay or to migrate? When Becker meets Harris-Todaro," European Economic Review, Elsevier, vol. 169(C).

    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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