Time-varying effect of macro-prudential policies on household credit growth: Evidence from China

Abstract

We examine the effect of macro-prudential policies on the growth of household housing credit in China. Rather than assuming this effect to be uniform over time, we test how it changes over time under different conditions. We deviate from previous studies of macro-prudential policies that focus on house price growth and, instead, focus on the growth of household housing credit, which is a key predictor of house price growth. The results from the time-varying parameter vector autoregressive (TVP-VAR) model for Chinese commercial banks over the period of 2006–2016 show that macro-prudential policies helped decrease the growth of household housing credit but this effect tended to decline over time. Panel data analysis also confirms this finding. The study provides insights and enriches understanding of the effectiveness of macro-prudential tools on the real estate market. It also provides fine-tuned guidelines for how government should use macro-prudential tools to curb bubbles in the housing market.