Advanced Search
MyIDEAS: Login

Assessing the Role of Income and Interest Rates in Determining House Prices

Contents:

Author Info

  • McQuinn, Kieran

    (Central Bank and Financial Services Authority of Ireland)

  • O'Reilly, Gerard

    (Central Bank and Financial Services Authority of Ireland)

Abstract

Property prices across many OECD countries have witnessed remarkable increases over the past 10 years. Two factors frequently posited for this boom are higher income levels and the benign interest rate environment experienced in many of these countries. However, empirical models of house prices struggle to achieve credible results concerning the impact of interest rates with coefficients that are frequently insignificant or of the wrong sign. In this paper we propose an intuitive theoretical model of house prices where the demand for housing is driven by how much individuals can borrow from financial institutions. This level of borrowing depends on disposable income levels and current interest rates. We empirically test this model by applying it to the Irish property market. Our results support the existence of a long-run relationship between actual house prices and the amount individuals can borrow with plausible and statistically significant adjustment to this long run equilibrium.

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.centralbank.ie/publications/documents/15RT06.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 15/RT/06.

as in new window
Length: 30 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:cbi:wpaper:15/rt/06

Contact details of provider:
Postal: P.O. Box No. 559, Dame Street, Dublin 2
Phone: (01) 671 6666
Fax: (01) 671 6561
Email:
Web page: http://www.centralbank.ie
More information through EDIRC

Related research

Keywords:

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. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  2. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  3. Campbell, John & Shiller, Robert, 1988. "Stock Prices, Earnings, and Expected Dividends," Scholarly Articles 3224293, Harvard University Department of Economics.
  4. Roche, Maurice, 2003. "Will there be a Crash in Irish House Prices?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2003(4-Winter), pages 1-16.
  5. Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
  6. N. Gregory Mankiw & David N. Weil, 1990. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  7. Maurice J. Roche, 1999. "Irish House Prices - Will the Roof Cave In?," The Economic and Social Review, Economic and Social Studies, vol. 30(4), pages 343-362.
  8. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  9. John Y. Campbell & Robert J. Shiller, 1989. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," NBER Working Papers 2100, National Bureau of Economic Research, Inc.
  10. Muellbauer, J & Murphy, A, 1996. "Booms and Busts in the UK Housing Market," Economics Papers 125, Economics Group, Nuffield College, University of Oxford.
  11. Denis Conniffe & David Duffy, 1999. "Irish House Price Indices ? Methodological Issues," Papers WP110, Economic and Social Research Institute (ESRI).
  12. David Duffy & John FitzGerald & Ide Kearney, 2005. "Rising House Prices in an Open Labour Market," Papers WP166, Economic and Social Research Institute (ESRI).
  13. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
  14. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
  15. Trevor Fitzpatrick & Kieran Mcquinn, 2007. "House Prices And Mortgage Credit: Empirical Evidence For Ireland," Manchester School, University of Manchester, vol. 75(1), pages 82-103, 01.
  16. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-55, December.
  17. Maurice J. Roche, 1999. "Irish house prices: will the roof fall in?," Economics, Finance and Accounting Department Working Paper Series n890699, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  18. Sean D. Campbell & Morris A. Davis & Joshua Gallin & Robert F. Martin, 2006. "A trend and variance decomposition of the rent-price ratio in housing markets," Finance and Economics Discussion Series 2006-29, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Daft House Price Report: 2010:Q2
    by Karl Whelan in The Irish Economy on 2010-07-13 11:46:15
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. D'Agostino, Antonello & McQuinn, Kieran & O' Reilly, Gerard, 2008. "Identifying and Forecasting House Price Dynamics in Ireland," Research Technical Papers 3/RT/08, Central Bank of Ireland.
  2. Robert Kelly & Kieran Mcquinn & Rebecca Stuart, 2011. "Exploring the Steady-State Relationship Between Credit and GDP for a Small Open Economy–The Case Of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 42(4), pages 455–477.
  3. Gareis, Johannes & Mayer, Eric, 2012. "What drives Ireland's housing market? A Bayesian DSGE approach," W.E.P. - Würzburg Economic Papers 88, University of Würzburg, Chair for Monetary Policy and International Economics.
  4. Addison-Smyth, Diarmaid & McQuinn, Kieran & O' Reilly, Gerard, 2009. "Quantifying Revenue Windfalls from the Irish Housing Market," Research Technical Papers 10/RT/09, Central Bank of Ireland.
  5. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
  6. Karl Whelan, 2010. "Policy Lessons from Ireland’s Latest Depression," The Economic and Social Review, Economic and Social Studies, vol. 41(2), pages 225-254.
  7. John Bradley & Gerhard Untiedt, 2012. "Emerging from recession? Future prospects for the Irish economy 2012-2020," HERMIN Economic Papers 4-2012, HERMIN.
  8. Honohan, Patrick & Donovan, Donal & Gorecki, Paul & Mottiar, Rafique, 2010. "The Irish Banking Crisis: Regulatory and Financial Stability Policy," MPRA Paper 24896, University Library of Munich, Germany.
  9. FitzGerald, John & Bergin, Adele & Conefrey, Thomas & Diffney, Sean & Duffy, David & Kearney, Ide & Lyons, Sean & Malaguzzi Valeri, Laura & Mayor, Karen & Richard S. J. Tol, 2008. "Medium-Term Review 2008-2015, No. 11," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR11, March.
  10. Juan Carmona Pidal & Markus Lampe & Joan R. Roses, 2011. "Spanish housing markets during the first phase of the rural-urban transition process," Working Papers in Economic History wp11-08, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  11. Juan Carmona Pidal & Markus Lampe & Joan R. Rosés, 2012. "Housing markets during the rural-urban transition : evidence from early 20th century Spain," Working Papers in Economic History wp12-10, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  12. Katrakilidis, Constantinos & Trachanas, Emmanouil, 2012. "What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration," Economic Modelling, Elsevier, vol. 29(4), pages 1064-1069.
  13. Kennedy, Gerard & McQuinn, Kieran, 2011. "Scenarios for Irish House Prices," Economic Letters 02/EL/11, Central Bank of Ireland.
  14. Petra Posedel & Maruška Vizek, 2011. "Are House Prices Characterized by Threshold Effects? Evidence from Developed and Post-Transition Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(6), pages 584-600, December.

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:cbi:wpaper:15/rt/06. 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: (Richard Smith).

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.