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Bubbles and crises: The role of house prices and credit

Author

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  • André K. Anundsen

    (Norges Bank (Central Bank of Norway))

  • Frank Hansen

    () (Norges Bank (Central Bank of Norway))

  • Karsten Gerdrup

    (Norges Bank (Central Bank of Norway))

  • Kasper Kragh-Sørensen

    (Norges Bank (Central Bank of Norway))

Abstract

This paper exploits a quarterly panel data set for 16 OECD countries over the period 1975q1–2013q2 to explore the importance of house prices and credit in affecting the likelihood of a financial crisis. Estimating a set of multivariate logit models, we find that booms in credit to both households and non-financial enterprises are important to account for when evaluating the stability of the financial system. In addition, we find that global housing market developments have predictive power for domestic financial stability. Finally, econometric measures of bubble-like behavior in housing and credit markets enter with positive and highly significant coefficients. Specifically, we find that the probability of a crisis increases markedly when bubble-like behavior coincides with high leverage.

Suggested Citation

  • André K. Anundsen & Frank Hansen & Karsten Gerdrup & Kasper Kragh-Sørensen, 2014. "Bubbles and crises: The role of house prices and credit," Working Paper 2014/14, Norges Bank.
  • Handle: RePEc:bno:worpap:2014_14
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    Keywords

    Basel III; Countercyclical capital buffer; Early warning models; Exuberance indicators; Financial market imbalances;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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