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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 32, No. 3, pp.263-283
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2019
Received 27 Feb 2019 Revised 01 Apr 2019 Accepted 09 Apr 2019

LTV Ratio Regulations and House Prices in a Small Open Economy with Heterogeneous Households

Junhee Lee
Junhee Lee, Professor, School of International Economics and Business, Yeungnam University, Gyeungsan 38541, Korea, Tel: +82-53-810-2769, Fax: +82-53-810-4653 lee1838@ynu.ac.kr

JEL Classification: E32, E44, F41

Abstract

Macro-prudential regulations, such as loan-to-value (LTV) ratio ceiling, are implemented in several economies to stabilize the financial market and macro-economy, in addition to conventional stabilization policies. This study constructs a small open economy model with heterogeneous households and house price fluctuations and examines the effects of LTV ratio regulation. Results of the model show that tightening the LTV ratio ceiling has considerable contractionary effects in a small open economy, but the effects are much smaller in a closed economy due to the general equilibrium effects of endogenous interest adjustment.

Keywords:

Heterogeneous household model, House price, LTV ratio regulation, Small open economy

Acknowledgments

The author would like to thank anonymous referees for valuable comments.

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