Loan-to-value policy in a bubble-creation economy

Effectiveness and Conduct of Macroprudential Policy in Indonesia in 2003-2020: Evidence from the Structural VAR Models

“…Policy transmission to the real property prices, however, is counterintuitive and resembles the well-known price puzzle identified in many studies on monetary policy (see, e.g., Jung & Ryu, 2020, Aginta & Someya, 2022. At the same time, the puzzling price response is in line with a recent finding by Luangaram and Thepmongkol (2022), who claim that in a country with low financial development, more restrictive LTV limits cannot have a significant impact on interest rates and property prices. The adverse effect of macroprudential tightening on economic activity is more difficult to establish empirically.…”

“…Surprisingly, the change in real property prices is negative, so the more expansionary macroprudential policy does not seem to stimulate the demand for real estate or/and exerts a stronger impact on the supply side of the real estate market than on the demand side. Even though the response of prices is puzzling, it fits well the argument put forward by Luangaram and Thepmongkol (2022). They argue that in countries with underdeveloped financial markets, both the interest rate and real estate prices are relatively unresponsive to the LTV policy.…”

“…Interestingly, Luangaram and Thepmongkol (2022) point out that the evidence from country-specific studies is more heterogeneous than that from cross-country studies. They hypothesize that the impact of LTV policy on asset prices and investment depends on the level of financial development and show that the policy is more effective in countries with high financial depth (Hongkong, Singapore, South Korea) than in those with low private credit-to-GDP ratios (Indonesia, the Philippines).…”

“…The consensus on this issue, however, has not been reached yet (Lee et al, 2015, Araujo et al, 2020. In a recent study, Luangaram and Thepmongkol (2022) argue that the effectiveness of LTV-based policy in taming asset price growth depends positively on the stage of financial development.…”

Does Bubble Still Exist after COVID-19? Evidence from Hong Kong Housing Market

“…Furthermore, prior studies concerned the effectiveness of macroprudential policies in the bubble-creation economy. Luangaram and Thepmongkol (2022) find that "restrictive policies tend to be more effective in dampening asset-price bubbles in economies that have a high degree of financial depth." Wong et al (2021) show that credit-tightening policies in Hong Kong were able to curb the house price growth in the high-price segment, while transaction taxes could not.…”