Aggregate and Distributional Impacts of LTV Policy: Evidence from China's Micro Data

Kaiji Chen, Qing Wang, Tong Xu and Tao Zha

No 28092, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mortgage expansion disproportionately increased the share of mortgages to middle-aged homeowners with high education, while their consumption growth declined persistently. To interpret these empirical findings, we develop a quantitative model and identify that homeowners' trade-up of their primary homes as speculative housing investment is a key channel for a change in LTV policy to exert aggregate and distributional impacts on mortgage markets. Our cross-city evidence provides empirical support for this channel.

JEL-codes: E02 E21 E50 G11 G12 G18 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-cna, nep-mac and nep-ure
Note: AP EFG ME PE
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