Aggregate and distributional impacts of LTV policy : evidence from China's micro data

Author / Creator

Chen, Kaiji, author

Available as

Online

Summary

Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mort...

Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mortgage expansion disproportionately increased the share of mortgages to middle-aged homeowners with high education, while their consumption growth declined persistently. To interpret these empirical findings, we develop a quantitative model and identify that homeowners' trade-up of their primary homes as speculative housing investment is a key channel for a change in LTV policy to exert aggregate and distributional impacts on mortgage markets. Our cross-city evidence provides empirical support for this channel.

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