Effects of LTV announcements in EU economies

Earlier studies on macroprudential policies focus on implementation dates and ignore potential anticipation effects. We collect monthly data on announcements of loan-to-value (LTV) ratio restrictions covering EU economies during 2000-2019. We show that announcements of LTV policies can have a sizeable impact on household credit, house prices and household durable goods consumption. New mortgage lending rates appear to increase following the announcement of an LTV ratio restriction. The estimated contractionary effects are driven mostly by binding actions and actions with non-discretionary components, suggesting that the design of macroprudential policies matters for their effectiveness.

Keywords: Macroprudential Policy; Loan-to-value Ratios;Cost of Credit;Local Projections
JEL codes E58; G21; G28

Working paper no. 704