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House Prices, Credit and Willingness to Lend


This paper establishes a Tobin’s q model in which house prices fluctuate around their long run equilibrium due to fluctuations in credit availability and income. It is shown that house prices are positively related to credit in the short run, however, negatively related to the availability of credit in the long run. Using survey data on banks’ willingness to lend and data on disintermediation for the US it is shown that the availability of credit is the principal variable driving house prices around their long run equilibrium. Shocks to interest rates and income have only secondary effects on house price fluctuations.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 87 (2011)
Issue (Month): 279 (December)
Pages: 537-557

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:279:p:537-557
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  1. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
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  9. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
  10. Joseph E. Stiglitz, 1989. "Money, Credit, and Business Fluctuations," NBER Working Papers 2823, National Bureau of Economic Research, Inc.
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  12. Jakob B Madsen, 2011. "A q Model of House Prices," Monash Economics Working Papers 03-11, Monash University, Department of Economics.
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