 Loan-to-value policy in a bubble-creation economyPongsak Luangaram and Athakrit Thepmongkol Journal of Asian Economics, 2022, vol. 79, issue C Abstract: This paper provides a theoretical analysis of macroprudential policy in the form of loan-to-value (LTV) restrictions in a bubble-creation economy. Such policy measures have been used intensively in Asia to deal with credit and property price boom-bust cycles while the effectiveness remains unclear, especially the country-specific cases. We find that the effect on investment and size of bubbles depends on the degree of financial development. Specifically, restrictive LTV policies tend to be more effective in dampening asset-price bubbles in economies that have a high degree of financial depth. High (low) financial depth implies that bubbles originally crowd out (in) investment, so that implementation of LTV policies causes bubbles to decrease (remain unchanged). These might explain some mixed empirical results of LTV policy on dampening asset-price growth. Keywords: Rational bubble; Bubble creation; Macroprudential policy; Loan-to-value policy; Overlapping generations model; Financial friction (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:79:y:2022:i:c:s1049007821001615 DOI: 10.1016/j.asieco.2021.101433 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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