Different houses, different channels: Monetary policy, macroprudential regulation, and bank liquidity in Indonesia’s housing market
DOI:
https://doi.org/10.12928/optimum.v16i2.17610Keywords:
Housing Prices, Loan-to-Value, Banking Liquidity, Monetary Policy, Housing SegmentationAbstract
Existing studies typically assume that monetary and macroprudential policies are transmitted uniformly across housing markets, despite substantial differences in financing structures and buyer characteristics across housing segments. This study addresses this gap by examining whether the effects of monetary policy, macroprudential regulation, and bank liquidity differ across small, medium, and large housing markets in Indonesia. Using quarterly panel data from 17 provinces covering 2012Q1–2024Q4, we employ a fixed-effects framework to estimate the effects of interest rates, Loan-to-Value (LTV) regulation, bank liquidity, and their interaction on segment-specific housing prices. The results provide strong evidence of heterogeneous policy transmission. LTV policy significantly affects housing prices across all segments, whereas monetary policy significantly affects small and medium house prices but not large house prices. Moreover, the interaction between LTV policy and bank liquidity is significant only in the large-house segment, indicating that the transmission of macroprudential policy varies with housing market size and liquidity conditions. These findings demonstrate that aggregate housing price responses can mask important differences across market segments. The study contributes to the housing policy literature by providing segment-level evidence on the heterogeneous transmission of monetary and macroprudential policies in an emerging-market economy. The findings also suggest that housing and financial-stability policies may benefit from greater consideration of housing-segment heterogeneity when assessing policy transmission and market responses.
References
Adrian, T., & Shin, H. S. (2010). Liquidity and leverage. Journal of Financial Intermediation, 19(3), 418-437. https://doi.org/10.1016/j.jfi.2008.12.002
Alam, Z., Alter, A., Eiseman, J., Gelos, G., Kang, H., Narita, M., Nier, E., & Wang, N. (2019). Digging deeper-Evidence on the effects of macroprudential policies from a new database. IMF Working Paper, 2019/066. International Monetary Fund. https://doi.org/10.5089/9781498302708.001
Beraja, M., Fuster, A., Hurst, E., & Vavra, J. (2019). Regional heterogeneity and the refinancing channel of monetary policy. The Quarterly Journal of Economics, 134(1), 109-183. https://doi.org/10.1093/qje/qjy021
Bernanke, B. S., Gertler, M., & Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. In J. B. Taylor & M. Woodford (Eds.), Handbook of Macroeconomics (Vol. 1, pp. 1341-1393). https://doi.org/10.1016/S1574-0048(99)10034-X
Bourassa, S. C., Dröes, M. I., & Hoesli, M. (2024). Housing market segmentation: A finite mixture approach. De Economist, 172(4), 291-337. https://doi.org/10.1007/s10645-024-09446-2
Bourassa, S. C., Hamelink, F., Hoesli, M., & MacGregor, B. D. (1999). Defining housing submarkets. Journal of Housing Economics, 8(2), 160-183. https://doi.org/10.1006/jhec.1999.0246
Calza, A., Monacelli, T., & Stracca, L. (2013). Housing finance and monetary policy. Journal of the European Economic Association, 11(Suppl. 1), 101-122. https://doi.org/10.1111/j.1542-4774.2012.01095.x
Cerutti, E., Claessens, S., & Laeven, L. (2017). The use and effectiveness of macroprudential policies: New evidence. Journal of Financial Stability, 28, 203-224. https://doi.org/10.1016/j.jfs.2015.10.004
Cerutti, E., Dagher, J., & Dell'Ariccia, G. (2017). Housing finance and real-estate booms: A cross-country perspective. Journal of Housing Economics, 38, 1-13. https://doi.org/10.1016/j.jhe.2017.02.001
Cesa-Bianchi, A., Ferrero, A., & Rebucci, A. (2018). International credit supply shocks and the housing market. Journal of International Economics, 144, 103803. https://doi.org/10.1016/j.jinteco.2017.11.006
Cloyne, J., Ferreira, C., Froemel, M., & Surico, P. (2020). Monetary policy when households have debt: new evidence on the transmission mechanism. The Review of Economic Studies, 87(1), 102-129. https://doi.org/10.1093/restud/rdy074
Dursun-De Neef, H. Ö. (2019). The transmission of bank liquidity shocks: Evidence from house prices. Review of Finance, 23(3), 629-658. https://doi.org/10.1093/rof/rfy001
Farmer, J. Doyne & Carro, Adrian & Hinterschweiger, Marc & Uluc, Arzu, 2022. Heterogeneous Effects and Spillovers of Macroprudential Policy in an Agent-Based Model of the UK Housing Market. INET Oxford Working Papers 2022-06, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
Fauzia, L. R., Rahayu, S. A. T., & Nugroho, A. A. (2019). The implication of loan-to-value ratio on credit housing demand in Indonesia. In Business innovation and development in emerging economies. CRC Press. https://doi.org/10.1201/9780429433382-33
Ferrero, A., Harrison, R., & Nelson, B. (2022). House Price Dynamics, Optimal Ltv Limits and the Liquidity Trap (March 25, 2022). Bank of England Working Paper No. 969, London. https://doi.org/10.2139/ssrn.4083153
Ferrero, C., Hedlund, A., Tang, Y., & Wang, P. (2024). House price dynamics, optimal loan-to-value limits, and the liquidity trap. Journal of Monetary Economics, 141, 103611.
Iacoviello, M. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review, 95(3), 739-764. https://doi.org/10.1257/0002828054201477
Islam, K. S., & Asami, Y. (2009). Housing market segmentation: A review. Review of Urban & Regional Development Studies, 21(2-3), 93-109. https://doi.org/10.1111/j.1467-940X.2009.00161.x
Jarociński, M., & Smets, F. (2008). House prices and the stance of monetary policy. Federal Reserve Bank of St. Louis Review, 90(4), 339-366. https://doi.org/10.20955/r.90.339-366
Jordà, Ò., Schularick, M., & Taylor, A. M. (2016). The great mortgaging: Housing finance, crises, and business cycles. Economic Policy, 31(85), 107-152. https://doi.org/10.1093/epolic/eiv017
Kaplan, G., Mitman, K., & Violante, G. L. (2020). The housing boom and bust: Model meets evidence. Journal of Political Economy, 128(9), 3285-3345. https://doi.org/10.1086/708816
Karmelavičius, J., & Otten, J. (2026). Household behavior under macroprudential borrower-based measures. IMF Working Paper, 2026/066. International Monetary Fund. https://doi.org/10.5089/9798229042437.001
Kuttner, K. N., & Shim, I. (2016). Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies. Journal of Financial Stability, 26, 31-44. https://doi.org/10.1016/j.jfs.2016.07.014
Margaris, Aristotelis. (2024). Monetary policy and house price heterogeneity: Evidence from the U.K. Economics Letters, 245, 112023. https://doi.org/10.1016/j.econlet.2024.112023
Mian, A. and Sufi, A. (2022). Credit supply and housing speculation. The Review of Financial Studies, 35(2), 680-719. https://doi.org/10.1093/rfs/hhab034
Min, F., Wen, F., Xu, J., & Wu, N. (2023). Credit supply, house prices, and financial stability. International Journal of Finance & Economics, 28(2), 2088-2108. https://doi.org/10.1002/ijfe.2527
Nikolakoudis, G. (2024). The economics of segmented housing markets. Becker Friedman Institute Working Paper Series. University of Chicago.
Nugroho, A. A., Purwaningsih, Y., Hakim, L., & Suryanto, S. (2024). Resilience tested: Interplay between mortgage channels and natural disasters on housing price. International Real Estate Review, 27(4), 537-563. https://doi.org/10.53383/100394
Richter, B., Schularick, M., & Shim, I. (2018). The macroeconomic effects of macroprudential policy. BIS Working Papers, 740. Swiss. https://doi.org/10.2139/ssrn.3233330
Sweeney, J. L. (1974). A commodity hierarchy model of the rental housing market. Journal of Urban Economics, 1(4), 288-323. https://doi.org/10.1016/0094-1190(74)90010-2
Watkins, C. A. (2001). The definition and identification of housing submarkets. Environment and Planning A, 33(12), 2235-2253. https://doi.org/10.1068/a34162
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Ariyanto Adhi Nugroho, Lukman Hakim, Dedi Susanto
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
