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House Prices and Mortgage Credit: Empirical Evidence for Ireland

  • Fitzpatrick, Trevor

    (Central Bank and Financial Services Authority of Ireland)

  • McQuinn, Kieran

    (Central Bank and Financial Services Authority of 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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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 5/RT/04.

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Length: 32 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:cbi:wpaper:5/rt/04
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  1. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "House prices, consumption, and monetary policy: a financial accelerator approach," Bank of England working papers 169, Bank of England.
  2. Russell Davidson & James G. MacKinnon, 1987. "Testing for Consistency using Artificial Regressions," Working Papers 687, Queen's University, Department of Economics.
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  8. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  9. Russell Davidson & James G. MacKinnon, 1999. "Artificial Regressions," Working Papers 978, Queen's University, Department of Economics.
  10. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
  11. Bacchetta, Philippe & Gerlach, Stefan, 1997. "Consumption and Credit Constraints: International evidence," CEPR Discussion Papers 1727, C.E.P.R. Discussion Papers.
  12. Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
  13. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
  14. A. Calza & C. Gartner & J. Sousa, 2003. "Modelling the demand for loans to the private sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 107-117.
  15. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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  17. repec:may:mayecw:n920799 is not listed on IDEAS
  18. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-55, December.
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