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Housing and credit markets in Italy in times of crisis

Author

Listed:
  • Michele Loberto

    () (Bank of Italy)

  • Francesco Zollino

    () (Bank of Italy)

Abstract

We investigate the determinants of Italian house prices and residential investments in a structural model with possible disequilibria in the market for lending to both households and firms in the building sector. Based on a structural approach that takes into account the multifold relationships between demand and supply within the housing and the credit markets, we find that, while house prices react mostly to disposable income and demographic pressures, lending conditions also exert a significant impact. During the recent crises the contribution of declining bank rates to household lending was limited, due to the greater deleveraging needs of Italian banks. Conventional monetary policy has supported house prices, albeit with declining intensity as policy rates have gradually approached the lower bound. At the same time, unconventional monetary policy measures have sustained house prices via their effect on Italian sovereign spreads, which have shrunk by a sizeable amount since they peaked in the period between late 2011 and early 2013. Finally, we find that house price developments stayed in line with the fundamentals, during both the global financial and sovereign debt crisis, with only minor and occasional discrepancies.

Suggested Citation

  • Michele Loberto & Francesco Zollino, 2016. "Housing and credit markets in Italy in times of crisis," Temi di discussione (Economic working papers) 1087, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1087_16
    as

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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2016/2016-1087/en_tema_1087.pdf
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    References listed on IDEAS

    as
    1. Danilo Liberati & Michele Loberto, 2017. "Taxation and housing markets with search frictions," Temi di discussione (Economic working papers) 1105, Bank of Italy, Economic Research and International Relations Area.
    2. Leonardo Gambacorta & David Marques‐Ibanez, 2011. "The bank lending channel: lessons from the crisis," Economic Policy, CEPR;CES;MSH, vol. 26(66), pages 135-182, April.
    3. repec:bla:intfin:v:20:y:2017:i:2:p:155-173 is not listed on IDEAS
    4. Lorenzo Burlon & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2017. "Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation," International Finance, Wiley Blackwell, vol. 20(2), pages 155-173, June.
    5. Del Giovane, Paolo & Eramo, Ginette & Nobili, Andrea, 2011. "Disentangling demand and supply in credit developments: A survey-based analysis for Italy," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2719-2732, October.
    6. Fair, Ray C & Jaffee, Dwight M, 1972. "Methods of Estimation for Markets in Disequilibrium," Econometrica, Econometric Society, vol. 40(3), pages 497-514, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    house prices; credit; system of simultaneous equations;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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