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House Prices, Money, Credit and the Macroeconomy

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  • Goodhart, Charles
  • Hofmann, Boris

Abstract

This paper assesses the linkages between money, credit, house prices and economic activity in industrialised countries over the last three decades. The analysis is based on a fixed-effects panel VAR estimated using quarterly data for 17 industrialized countries spanning the period 1970-2006. The main results of the analysis are the following: (i) There is evidence of a significant multidirectional link between house prices, monetary variables and the macroeconomy. (ii) The link between house prices and monetary variables is found to be stronger over a more recent sub-sample from 1985 till 2006. (iii) The effects of shocks to money and credit are found to be stronger when house prices are booming. The last two results are, however, in general not statistically significant due to the large confidence bands of the impulse responses. JEL Classification: E21, E22, E31, E32, E44, E47, E50, R21, R31

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0888.

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Date of creation: Apr 2008
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Handle: RePEc:ecb:ecbwps:20080888

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Keywords: collateral; financial liberalisation; House prices; money and credit; wealth effects;

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  1. GONÇALVES, Silvia & KILIAN, Lutz, 2003. "Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form," Cahiers de recherche 2003-01, Universite de Montreal, Departement de sciences economiques.
  2. Nelson, Edward, 2003. "The Future of Monetary Aggregates in Monetary Policy Analysis," CEPR Discussion Papers 3897, C.E.P.R. Discussion Papers.
  3. Gerlach, Stefan & Peng, Wensheng, 2004. "Bank Lending and Property Prices in Hong Kong," CEPR Discussion Papers 4797, C.E.P.R. Discussion Papers.
  4. Gouteron, S. & Szpiro, D., 2005. "Excès de liquidité monétaire et prix des actifs," Working papers 131, Banque de France.
  5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  6. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  7. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February.
  8. Claudio E. V. Borio & Philip Lowe, 2004. "Securing sustainable price stability: should credit come back from the wilderness?," BIS Working Papers 157, Bank for International Settlements.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  11. David Miles & Vladimir Pillonca, 2008. "Financial innovation and European housing and mortgage markets," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 145-175, spring.
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