House Prices and Mortgage Credit: Empirical Evidence for Ireland
In Ireland, real property prices have increased at an average of 12 per cent per annum between 1996 and 2002 with residential mortgage credit also increasing substantially. The Irish economy provides an interesting case study of a rapidly growing economy with very low nominal interest rates experiencing a housing boom. In this paper, we empirically examine the relationship between domestic bank credit and Irish house prices. Using a number of econometric approaches, we find evidence of a long-run mutually reinforcing relationship. We use the long-run results to underpin a short-run system of the housing and credit sector and show that the short run response of house prices and credit to a one off increase in household disposable income is felt for almost three years after the initial change.
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