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Bank lending and property prices: some international evidence

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  • Boris Hofmann

Abstract

This paper analyses the patterns of dynamic interaction between bank lending and property prices based on a sample of 20 countries using both time series and panel data techniques. Long-run causality appears to go from property prices to bank lending. This finding suggests that property price cycles, reflecting changing beliefs about future economic prospects, drive credit cycles, rather than excessive bank lending being the cause of property price bubbles. There is also evidence of short-run causality going in both directions, implying that a mutually reinforcing element in past boom-bust cycles in credit and property markets cannot be ruled out.

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File URL: http://repec.org/mmfc03/Hofmann.pdf
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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 46.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:46

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA.
  2. Paul Mizen & Boris Hofmann, 2002. "Base rate pass-through: evidence from banks' and building societies' retail rates," Bank of England working papers 170, Bank of England.
  3. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises: Pitfalls in Financial Liberalization?," IMF Working Papers 95/61, International Monetary Fund.
  4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  5. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
  6. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  7. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  8. Claudio E. V. Borio & Wilhelm Fritz, 1995. "The response of short-term bank lending rates to policy rates: a cross-country perspective," BIS Working Papers 27, Bank for International Settlements.
  9. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  10. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  11. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  12. Boris Hofmann, 2001. "The determinants of private sector credit in industrialised countries: do property prices matter?," BIS Working Papers 108, Bank for International Settlements.
  13. Gerlach, Stefan & Peng, Wensheng, 2005. "Bank lending and property prices in Hong Kong," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 461-481, February.
  14. Boris Hofmann & Paul Mizen, 2004. "Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates," Economica, London School of Economics and Political Science, vol. 71, pages 99-123, 02.
  15. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  16. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
  17. Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  19. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  20. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  21. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
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Cited by:
  1. Sae Park & Doo Bahng & Yun Park, 2010. "Price Run-up in Housing Markets, Access to Bank Lending and House Prices in Korea," The Journal of Real Estate Finance and Economics, Springer, vol. 40(3), pages 332-367, April.
  2. Gerlach, Stefan & Peng, Wensheng, 2004. "Bank Lending and Property Prices in Hong Kong," CEPR Discussion Papers 4797, C.E.P.R. Discussion Papers.
  3. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Research Department of Statistics Norway.
  4. Liang, Qi & Cao, Hua, 2007. "Property prices and bank lending in China," Journal of Asian Economics, Elsevier, vol. 18(1), pages 63-75, February.
  5. Dieter Gerdesmeier & Hans-Eggert Reimers & Barbara Roffia, 2011. "Early Warning Indicators for Asset Price Booms," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 1-19, June.
  6. Anundsen, André K. & Jansen, Eilev S., 2013. "Self-reinforcing effects between housing prices and credit," Journal of Housing Economics, Elsevier, vol. 22(3), pages 192-212.
  7. 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.
  8. Katrin Assenmacher-Wesche & Stefan Gerlach, 2010. "Monetary policy and financial imbalances: facts and fiction," Economic Policy, CEPR & CES & MSH, vol. 25, pages 437-482, 07.

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