Advanced Search
MyIDEAS: Login to save this paper or follow this series

Bank lending and commercial property cycles: some cross-country evidence

Contents:

Author Info

  • E. Philip Davis

    (Brunel University)

  • Haibin Zhu

Abstract

Motivated by the frequently observed link between commercial property price volatility and banking crises, this paper investigates at a macroeconomic level the determination of commercial property prices and the interaction between commercial property prices and bank lending. We develop a reduced-form theoretical model which suggests bank lending is closely related to commercial property prices and that commercial property can develop cycles given plausible assumptions, where the cycles are largely driven by the dynamic linkage between the commercial property sector, bank credit and the macroeconomy. Cross-country empirical analysis based on a sample of 17 developed economies, using a unique dataset collected by the BIS, confirms the model's predictions. An investigation of determinants of commercial property prices shows particularly strong links of credit to commercial property in the countries that experienced banking crises linked to property losses in 1985-95. Further studies of dynamic interaction suggest that commercial property prices are rather "autonomous", in that they tend to cause credit expansion, rather than excessive bank lending boosting property prices. In addition, GDP has an important influence on both commercial property prices and bank credit. The work has implications for risk management and prudential supervision.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bis.org/publ/work150.pdf
File Function: Full PDF document
Download Restriction: no

File URL: http://www.bis.org/publ/work150.htm
Download Restriction: no

Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 150.

as in new window
Length: 45 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:bis:biswps:150

Contact details of provider:
Postal: Centralbahnplatz 2, CH - 4002 Basel
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Email:
Web page: http://www.bis.org/
More information through EDIRC

Related research

Keywords: commercial property prices; bank credit; time series analysis;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Davis, E. Philip & Zhu, Haibin, 2011. "Bank lending and commercial property cycles: Some cross-country evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(1), pages 1-21, February.
  2. Richard J. Herring & Susan Wachter, 1999. "Real Estate Booms and Banking Busts: An International Perspective," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 99-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Gerlach, Stefan & Peng, Wensheng, 2004. "Bank Lending and Property Prices in Hong Kong," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4797, C.E.P.R. Discussion Papers.
  4. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers, C.V. Starr Center for Applied Economics, New York University 94-24, C.V. Starr Center for Applied Economics, New York University.
  5. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  6. Davis, E. Philip, 1995. "Debt, Financial Fragility, and Systemic Risk," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198233312, October.
  7. Patric H. Hendershott, . "Systematic Valuation Errors and Property Cycles: A Clinical Study of the Sydney Office Market," Research in Financial Economics, Ohio State University 9611, Ohio State University.
  8. Quigley, John M., 2002. "Real Estate Prices and Economic Cycles," Berkeley Program on Housing and Urban Policy, Working Paper Series, Berkeley Program on Housing and Urban Policy qt58c6v2kx, Berkeley Program on Housing and Urban Policy.
  9. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  10. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  11. Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 51(5), pages 1653-79, December.
  12. E Philip DaviS & Haibin Zhu, 2004. "Commercial property prices and bank performance," Public Policy Discussion Papers, Economics and Finance Section, School of Social Sciences, Brunel University 04-19, Economics and Finance Section, School of Social Sciences, Brunel University.
  13. Claudio Borio & Patrick McGuire, 2004. "Twin peaks in equity and housing prices?," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
  14. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(460), pages 236-55, January.
  15. Yoon Dokko & Robert H. Edelstein & Allan J. Lacayo & Daniel C. Lee, 1999. "Real Estate Income and Value Cycles: A Model of Market Dynamics," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 18(1), pages 69-96.
  16. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "House prices, consumption, and monetary policy: a financial accelerator approach," Bank of England working papers, Bank of England 169, Bank of England.
  17. Patric H. Hendershott, 1994. "Rental Adjustment & Valuation of Real Estate in Overbuilt Markets: Fundamental vs. Reported Office Market Values in Sydney Australia," NBER Working Papers 4775, National Bureau of Economic Research, Inc.
  18. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 52(1-2), pages 5-59.
  19. Wheaton, William C & Torto, Raymond G & Evans, Peter, 1997. "The Cyclic Behavior of the Greater London Office Market," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 15(1), pages 77-92, July.
  20. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  21. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
  22. Ming-Chi Chen & Kanak Patel, 1998. "House Price Dynamics and Granger Causality: An Analysis of Taipei New Dwelling Market," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 1(1), pages 101-126.
  23. Garry J. Schinasi & Steven Riess Weisbrod & Monica Hargraves, 1993. "Asset Price Inflation in the 1980's," IMF Working Papers, International Monetary Fund 93/77, International Monetary Fund.
  24. Allen N. Berger & Gregory F. Udell, 2003. "The institutional memory hypothesis and the procyclicality of bank lending behaviour," BIS Working Papers, Bank for International Settlements 125, Bank for International Settlements.
  25. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 90(1), pages 1-44, May.
  26. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 125-37, March.
  27. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
  28. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  29. William C. Wheaton, 1987. "The Cyclic Behavior of the National Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 15(4), pages 281-299.
  30. Jan Rouwendal & Rob Alessie, 2002. "House Prices, Second Mortgages and Household Savings; An Empirical Investigation for the Netherlands, 1987-1994," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-074/3, Tinbergen Institute.
  31. E P Davis, 1993. "Bank Credit Risk," Bank of England working papers, Bank of England 8, Bank of England.
  32. Hendershott, Patric H., 1994. "Rental adjustment and valuation of real estate in overbuilt markets: fundamental versus reported office market values in Sydney, Australia," ERES, European Real Estate Society (ERES) eres1994_138, European Real Estate Society (ERES).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bis:biswps:150. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.