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House Prices, Money, Credit and the Macroeconomy

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Listed:
  • Goodhart, Charles
  • Hofmann, Boris

Abstract

This paper assesses the linkages between money, credit, house prices and economic activity in industrialised countries over the last three decades. The analysis is based on a fixed-effects panel VAR estimated using quarterly data for 17 industrialized countries spanning the period 1970-2006. The main results of the analysis are the following: (i) There is evidence of a significant multidirectional link between house prices, monetary variables and the macroeconomy. (ii) The link between house prices and monetary variables is found to be stronger over a more recent sub-sample from 1985 till 2006. (iii) The effects of shocks to money and credit are found to be stronger when house prices are booming. The last two results are, however, in general not statistically significant due to the large confidence bands of the impulse responses. JEL Classification: E21, E22, E31, E32, E44, E47, E50, R21, R31

Suggested Citation

  • Goodhart, Charles & Hofmann, Boris, 2008. "House Prices, Money, Credit and the Macroeconomy," Working Paper Series 888, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2008888
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    References listed on IDEAS

    as
    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    2. Gerlach, Stefan & Peng, Wensheng, 2005. "Bank lending and property prices in Hong Kong," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 461-481, February.
    3. Gouteron, S. & Szpiro, D., 2005. "Excès de liquidité monétaire et prix des actifs," Working papers 131, Banque de France.
    4. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    6. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
    7. Tullio Jappelli & Marco Pagano, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 83-109.
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    9. David Miles & Vladimir Pillonca, 2008. "Financial innovation and European housing and mortgage markets," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 145-175, spring.
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    11. Claudio E. V. Borio & Philip Lowe, 2004. "Securing sustainable price stability: should credit come back from the wilderness?," BIS Working Papers 157, Bank for International Settlements.
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    More about this item

    Keywords

    collateral; financial liberalisation; house prices; money and credit; wealth effects;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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