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When is macroprudential policy effective?

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Previous studies have shown that limits on loan-to- value (LTV) and debt-to-income (DTI) ratios can stabilise the housing market, and that tightening these limits tends to be more effective than loosening them. This paper examines whether the relative effectiveness of tightening vs. loosening macroprudential measures depends on where in the housing cycle they are implemented. I find that tightening measures have greater effects when credit is expanding quickly and when house prices are high relative to income. Loosening measures seem to have smaller effects than tightening, but the difference is negligible in downturns. Loosening being found to have small effects is consistent with where it occurs in the cycle. macroprudential policies.

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  • Chris McDonald, 2015. "When is macroprudential policy effective?," Reserve Bank of New Zealand Discussion Paper Series DP2015/06, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2015/06
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    1. Kuttner, Kenneth N. & Shim, Ilhyock, 2016. "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies," Journal of Financial Stability, Elsevier, vol. 26(C), pages 31-44.
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