The impact of macroprudential policy on inequality and implications for inclusive financial stability

A loan-to-value ratio (LTV) ceiling is a macroprudential policy that limits households' mortgage borrowing to a fraction of the value of a house. Our empirical evidence suggests that LTV ceilings have a significant impact on widening household wealth inequality. Using South Korean survey data from 9,844 households over the 2017-2019 period and a regression discontinuity design (RDD), we estimate that the tightening of the LTV ceiling by 10 percentage points reduced the average log net worth of the poorest quintile of households by 1.3 (a -73% change in net worth) over two years relative to the control households. Meanwhile, the measure did not affect the net worth of wealthier households.