Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea

By Deniz Igan, Heedon Kang. Social Science Research Network, 2011

293 citations recorded by the source corpus.

With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2e58d49f2a64e878c0486b7a55b9bc9d0e016286

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Citations in the corpus

The Use and Effectiveness of Macroprudential Policies: New Evidence (2015, unknown): “Using sectoral data, Igan and Kang 2011) find LTV and DTI limits to moderate mortgage credit growth 6 Another recent user of the IMF survey is Cerutti et al. (2015a) which put together quarterly dataset, covering the period 2000Q1 to 2014Q4 for 62 countries, and easuring the intensity in the use of…”
Financial Stability and Monetary Policy: How Closely Interlinked? (2014, background): “See also Igan and Kang (2011). (30)Overviews of the evidence are also available in Crowe et al. (2011) and Committee on the Global Financial System (2012, annex 4).”
Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures (2016, background): “With Korean data on housing and mortgage activity, Igan and Kang (2011) ﬁnd that the tightening of DTI and LTV limits have a signiﬁcant and sizeable impact on transaction activity and house price appreciation.”
Macroprudential Policies and Housing Prices-A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe (2012, background): “Igan and Kang (2011) find that the adoption of maximum loan-to-value (LTV) and debt-service-to-income (DTI) ratios in Korea in the second half of the 2000s was successful in slowing down housing price inflation and the growth of transaction volumes.”
Macroprudential policy and bank risk (2018, background): “For instance, Igan and Kang (2011) argue that the impact of a tightening of monetary policy on defaults can be contained by having in place conservative limits on debt-to-income (DTI) ratios.”
Monetary Policy, Financial Conditions, and Financial Stability (2014, unknown): “Looking at recent specific cases, the use of LTV limits combined with other actions in Hong Kong, Korea, and Canada may have mitigated some growth in house prices (Almeida, Campello, and Liu 2006; Igan and Kang 2011; Wong et al. 2011).”
Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database (2019, unknown): “7 Many empirical studies provide the estimated effects per policy action, typically on credit growth and house prices (e.g., Igan and Kang 2011, Elliott et al. 2013, Krznar and Morsink 2014, Kuttner and Shim 2016, Akinci and Olmstead-Rumsey 2018, Cerutti et al. 2017a, IMF 2017, and Poghosyan…”
Macroprudential policy and bank systemic risk (2020, unknown): “Igan and Kang (2011) make use of a regional database to examine the effect of loan-to-value and debt-to-income limits on house price dynamics, residential real estate market activity, and household leverage in Korea.”
What do we know about the effects of macroprudential policy (2018, unknown): “Igan and Kang (2011) for example use data from a survey of mortgages and housing demand by Korean households to examine the impact of LTV and DTI limits on house price dynamics and household leverage in Korea.”
The Anatomy of the Transmission of Macroprudential Policies (2020, background): “Although they do not analyze the role of banks, Tzur-Ilan (2017) and Igan and Kang (2011) show borrowers move away from hot real estate markets, slowing down house price growth in Israel and Korea, respectively.5 3See Aikman et al. (2019), Freixas et al. (2015), Claessens et al. (2013), Claessens…”