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A structural model for the housing and credit markets in Italy

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  • Andrea Nobili

    ()
    (Bank of Italy)

  • Francesco Zollino

    ()
    (Bank of Italy)

Abstract

We estimate a fully-fledged structural system for the housing market in Italy, taking into account the multi-fold link with bank lending to both households and construction firms. The model allows the house supply to vary in the short run and the banking sector to affect the equilibrium in the housing market, through its effect on housing supply and demand. We show that house prices react mostly to standard drivers such as disposable income, expected inflation and demographic pressures. Lending conditions also have a significant impact, especially through their effects on mortgage loans, and consequently on housing demand. Allowing short-run adjustment in house supply implies a weaker response of house prices to a change in the monetary stance or in banks’ deleveraging process. Finally, we find that since the mid-eighties house price developments in Italy have been broadly in line with the fundamentals; during the recent financial crisis, the worsening in credit supply conditions dampened house price dynamics, partly offsetting the positive stimulus provided by the easing of the monetary policy stance.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 887.

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Date of creation: Oct 2012
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Handle: RePEc:bdi:wptemi:td_887_12

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Web page: http://www.bancaditalia.it
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Keywords: house prices; credit; system of simultaneous equations;

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References

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  1. Shiller, Robert J., 2007. "Understanding Recent Trends in House Prices and Home Ownership," Working Papers 28, Yale University, Department of Economics.
  2. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 414-435, October.
  3. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  4. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  5. Robert Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," Yale School of Management Working Papers amz2557, Yale School of Management, revised 01 Nov 2007.
  6. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  7. Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlcek, 2011. "BASEL III: Long-term impact on economic performance and fluctuations," BIS Working Papers 338, Bank for International Settlements.
  8. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
  9. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  10. Luca Casolaro & Leonardo Gambacorta, 2005. "Un modello econometrico per il credito bancario alle famiglie in Italia," Moneta e Credito, Economia civile, vol. 58(229), pages 29-56.
  11. A. Senhadji Semlali & Charles Collyns, 2002. "Lending Booms, Real Estate Bubbles and The Asian Crisis," IMF Working Papers 02/20, International Monetary Fund.
  12. Luci Ellis, 2005. "Disinflation and the dynamics of mortgage debt," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 5-20 Bank for International Settlements.
  13. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Housing Markets and Structural Policies in OECD Countries," OECD Economics Department Working Papers 836, OECD Publishing.
  14. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September.
  15. Yener Altunbas & Leonardo Gambacorta & David Marques-Ibanez, 2010. "Does monetary policy affect bank risk-taking?," BIS Working Papers 298, Bank for International Settlements.
  16. Heitor Almeida & Murillo Campello & Crocker Liu, 2006. "The Financial Accelerator: Evidence from International Housing Markets," Review of Finance, European Finance Association, vol. 10(3), pages 321-352, September.
  17. Ricardo Gimeno & Carmen Martínez-Carrascal, 2006. "The interaction between house prices and loans for house purchase. The Spanish case," Banco de Espa�a Working Papers 0605, Banco de Espa�a.
  18. Stefan Gerlach & Wensheng Peng, 2003. "Bank Lending and Property Prices in Hong Kong," Working Papers 122003, Hong Kong Institute for Monetary Research.
  19. Fitzpatrick, Trevor & McQuinn, Kieran, 2004. "House Prices and Mortgage Credit: Empirical Evidence for Ireland," Research Technical Papers 5/RT/04, Central Bank of Ireland.
  20. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, January.
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Cited by:
  1. Antonio Bassanetti & Matteo Bugamelli & Sandro Momigliano & Roberto Sabbatini & Francesco Zollino, 2013. "The policy response to macroeconomic and fiscal imbalances in Italy in the last fifteen years," Questioni di Economia e Finanza (Occasional Papers) 211, Bank of Italy, Economic Research and International Relations Area.
  2. Federico Cingano & Francesco Manaresi & Enrico Sette, 2013. "Does credit crunch investments down? New evidence on the real effects of the bank-lending channel," Mo.Fi.R. Working Papers 91, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. Philip Arestis & Ana Rosa Gonzalez, 2013. "Endogenous Bank Credit and Its Link to Housing in OECD Countries," Economics Working Paper Archive wp_750, Levy Economics Institute, The.
  4. Philip Arestis & Ana Rosa Gonzalez, 2013. "Modeling the Housing Market in OECD Countries," Economics Working Paper Archive wp_764, Levy Economics Institute, The.

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