This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.
Mr. Eugenio M Cerutti, Mr. Ricardo Correa, Elisabetta Fiorentino, and Esther Segalla
This paper documents the features of a new database that focuses on changes in the intensity in the usage of
several widely used prudential tools, taking into account both macro-prudential and micro-prudential objectives.
The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through
2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits,
concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are
constructed since some useful further decompositions are presented, with capital buffers divided into four subindices:
general capital requirements, real state credit specific capital buffers, consumer credit specific capital
buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic
currency capital requirements and foreign currency capital requirements. While general capital requirements have
the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest
number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution
of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of
loosening or tightening of instruments in relation to business and financial cycles.
There is increasing interest in loan-to-value (LTV) and debt-service-to-income (DTI) limits as many countries face a new round of rising house prices. Yet, very little is known on how these regulatory instruments work in practice. This paper contributes to fill this gap by looking closely at their use and effectiveness in six economies—Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania. Insights include: rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.
This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.
Mr. Daniel Leigh, Ms. Stefania Fabrizio, and Mr. Ashoka Mody
The countries of Eastern Europe achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, they rode a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances were about on par from the mid-1990s; both regions far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia were, however, very different. East Europe relied on a distinctive-often discredited-model, embracing financial integration with structural change to compensate for appreciating real exchange rates. In contrast, East Asia contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has, thus far, not had an obviously differential impact on emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. If the East European growth model is distinctive, is it sustainable and replicable? The paper speculates on the possibilities.
International Monetary Fund. External Relations Dept.
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