Macroprudential Policy and Housing Market Expectations

Pei Kuang

“Using a large-scale online survey experiment, we study the effects of changes in three borrower-based macroprudential policies: residential loan-to-value (LTV), debt-to-income, and buy-to-let LTV ratio, on British consumers' housing market expectations. Policy tightenings lead to lower house price expectations, more negative sentiments about housing transactions, and worsened affordability evaluations; policy loosenings cause opposite effects. The residential LTV ratio is the most effective tool. Changes in residential LTV ratio have larger impacts on house price expectations in "hot'' markets. This finding is reconciled in a model featuring a feedback loop between house prices, credit, and price expectations.”

About the speaker:

Dr Pei Kuang is a Associate Professor in Economics. He received his Ph.D. from the Goethe University Frankfurt (Germany) and joined the Department of Economics in August 2012. His research focuses on empirical and theoretical analysis of imperfect knowledge in Macro and Finance with an emphasis on macroeconomic policy making and issues related to expectation formation and learning. He has published in the NBER Macroeconomics Annual, Journal of Monetary Economics, European Economic Review and other journals.