Effects of LTV Announcements in EU Economies

Abstract

Earlier empirical studies on the effects of macroprudential policies focus on implementation dates and, in most cases, ignore potential anticipation effects. In this paper we collect monthly data on announcements of loan-to-value (LTV) ratio restrictions covering 28 EU economies during the period 2000-2019. We show that announcements of LTV tightening policies can have a sizeable negative impact on household credit, house prices and household durable goods consumption. New mortgage lending rates appear to increase following the announcement of a LTV ratio restriction. We find that the estimated contractionary effects on household credit are driven by announcements with delayed implementation, whereas the effects on house prices and new lending rates are driven by announcements with quick implementation. We also show that our findings are mostly driven by binding actions and actions without a speed-limit component, suggesting that the design of macroprudential policies matters for their effectiveness.

Keywords: Macroprudential Policy, Loan-to-value Ratios, Cost of Credit, Local Projections