The impact of macroprudential policy on inequality and implications for inclusive financial stability

Sungmin Park and Young-Han Kim

Journal of Banking & Finance, 2023, vol. 146, issue C

Abstract: A loan-to-value ratio (LTV) ceiling is a macroprudential policy that limits households' mortgage borrowing to a fraction of the value of a house. Our empirical evidence suggests that LTV ceilings have a significant impact on widening household wealth inequality. Using South Korean survey data from 9,844 households over the 2017–2019 period and a regression discontinuity design (RDD), we estimate that the tightening of the LTV ceiling by 10 percentage points reduced the average log net worth of the poorest quintile of households by 1.3 (a -73% change in net worth) over two years relative to the control households. Meanwhile, the measure did not affect the net worth of wealthier households.

Keywords: Macroprudential policy; Wealth inequality; Household finance; Inclusive financial stability; Regression discontinuity design (search for similar items in EconPapers)
JEL-codes: E61 F65 G28 G51 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:146:y:2023:i:c:s0378426622002965

DOI: 10.1016/j.jbankfin.2022.106716

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