The effectiveness of the counter-cyclical loan-to-value regulation: Generic versus sector-specific rules

Abstract This paper considers the implications of counter-cyclical loan-to-value (CcLTV) regulation in a setting where different types borrowers from distinct sectors credit market co-exist. We consider two macro-prudential policy regimes, namely generic and sector-specific. find that both regimes are more effective than baseline regime (constant LTV ratios) stabilising macroeconomic financial stability, welfare enhancing. Compared to regime, sector-specific delivers higher degree stability. For there is clear tradeoff between as authority adjusts its preference objectives. To enhance effectiveness CcLTV regulation, we argue regulator should borrowers’ heterogeneity, tailor according specific conditions each sector market, rather aggregate conditions.