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Endogenous Bank Credit and Its Link to Housing in OECD Countries

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  • Philip Arestis
  • Ana Rosa Gonzalez

Abstract

The relevant economic literature frequently focuses on the impact of credit shocks on housing prices. The doctrine of the "New Consensus Macroeconomics" completely ignores bank credit. The "Great Recession," however, has highlighted the significance of bank credit. The purpose of this contribution is to revisit this important macroeconomic variable. We propose to endogenize the volume of bank credit by paying special attention to those variables that are related to the real estate market, which can be considered key to the evolution of bank credit. Our theoretical hypothesis is tested by means of a sample of 15 Organisation for Economic Co-operation and Development (OECD) economies from 1970 to 2011. We apply the cointegration technique for the latter purpose, which permits the modeling of the long-run equilibrium relationship and the dynamics of the short run, along with an error-correction term.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_750.

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Date of creation: Jan 2013
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Handle: RePEc:lev:wrkpap:wp_750

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Keywords: Bank Credit; Collateral Channel; Housing Market; OECD Countries; Empirical Modeling;

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