Abstract
Macroprudential policies to counter the housing bubble has been widely implemented to maintain financial stability. However, few attempts have been made to address the (un)intended externalities, namely, the “bubble-thy-neighbor” spillovers of Forbes et al. (2016). A loan-to-value (LTV) policy adopted in a local rather than the overall housing market in Taiwan provides an opportunity to investigate the transmission from the bubbles to spillovers under time-varying econometric frameworks. The empirical results show that the LTV policy has been very effective in eliminating local housing bubbles, while the information regarding exorbitant housing prices in regulated areas had increasing ripple effects on other unregulated areas.
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