Safeguarding Banks and Containing Property Booms: Cross-Country Evidence on Macroprudential Policies and Lessons from Hong Kong Sar

27 Pages Posted: 12 Dec 2011

See all articles by Ashvin Ahuja

Ashvin Ahuja

International Monetary Fund (IMF)

Malhar Nabar

International Monetary Fund (IMF)

Date Written: December 2011

Abstract

We assess the effectiveness of macroprudential policies against a number of different indicators of property sector activity and financial stability. At the cross-country level the use of LTV caps decelerates property price growth. Both LTV and DTI caps slow property lending growth. LTV caps also affect a broader range of financial stability indicators in economies with pegged exchange rates and currency boards. For Hong Kong SAR, LTV policy tends to be forward looking, with caps lowered to counter downward movements in mortgage rates, and higher growth in mortgage loan and volumes of transactions. The reduction in caps appears to respond to small and medium size flat price appreciation, and contributes to a decline in high-end volume growth after a year and total transactions volume growth after 1½–2 years. Price growth responds favorably after 2 years. The evidence suggests LTV tightening could affect property activity through the expectations channel rather than through the credit channel.

Keywords: Banking sector, Capital, Cross country analysis, Financial stability, Housing prices, Monetary policy

Suggested Citation

Ahuja, Ashvin and Nabar, Malhar, Safeguarding Banks and Containing Property Booms: Cross-Country Evidence on Macroprudential Policies and Lessons from Hong Kong Sar (December 2011). IMF Working Papers, Vol. , pp. 1-26, 2011. Available at SSRN: https://ssrn.com/abstract=1971435

Ashvin Ahuja (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Malhar Nabar

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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