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Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea

Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea by Deniz Igan
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With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics.
International Monetary Fund; December 2011
35 pages; ISBN 9781463952112
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Title: Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea
Author: Deniz Igan; Heedon Kang