The effectiveness of macroprudential policy tools in reducing the likelihood of housing price booms: The role of a low interest rate environment

Zaneta Vodrázka

Central Bank Review, 2026, vol. 26, issue 1

Abstract: The article estimates the effectiveness of tightening borrower-, capital-, and liquidity-based tools in decreasing the cyclical component of housing price growth and the probability of housing price booms with and without a low interest rate environment. The estimate is based on quarterly data for 41 countries from 2000 Q1 to 2021 Q4. We use the local projections approach to estimate a linear panel model and a logit model. The results highlight the critical role of a low interest rate environment in the design of macroprudential policy tools. In a low interest rate environment, tightening of borrower-based tools raises the probability of housing price booms over the period studied. However, in the absence of a low interest rate environment, borrower-based tools are more effective for decreasing the probability of housing price booms than other tools. Tightening of capital-based tools is moderately effective in lowering the probability of housing price booms in the absence of low interest rates, but in a low interest rate environment, it increases the probability of housing price booms in the first year of the horizon. Lastly, tightening of liquidity-based tools does not have a significant effect on the probability of housing price booms, regardless of interest rates.

Keywords: Macroprudential policy; Housing price boom; Logit regression (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:cebare:v:26:y:2026:i:1:article:100242

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