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Self-reinforcing effects between housing prices and credit

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  • Anundsen, André K.
  • Jansen, Eilev S.

Abstract

The financial crisis has brought the interaction between housing prices and household borrowing into the limelight of the economic policy debate. This paper examines the nexus of housing prices and credit in Norway within a structural vector equilibrium correction model (SVECM) over the period 1986q2–2008q4. The results establish a two way interaction in the long-run, so that higher housing prices lead to a credit expansion, which in turn puts an upward pressure on prices. Interest rates influence housing prices indirectly through the credit channel. Furthermore, households’ expectations about the future development of their own income as well as in the Norwegian economy have a significant impact on housing price growth. Dynamic simulations show how shocks are propagated and amplified. When we augment the model to include the supply side of the housing market, these effects are dampened.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 22 (2013)
Issue (Month): 3 ()
Pages: 192-212

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Handle: RePEc:eee:jhouse:v:22:y:2013:i:3:p:192-212

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Web page: http://www.elsevier.com/locate/inca/622881

Related research

Keywords: E27; E44; G21; G28; R21; R31; Housing prices; Household borrowing; Financial accelerator; SVECM; Dynamic simulations;

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References

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Cited by:
  1. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Research Department of Statistics Norway.
  2. Hammersland, Roger & Træe, Cathrine Bolstad, 2014. "The financial accelerator and the real economy: A small macroeconometric model for Norway with financial frictions," Economic Modelling, Elsevier, vol. 36(C), pages 517-537.

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