[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/lie/wpaper/45.html
   My bibliography  Save this paper

The Knotty Interplay Between Credit and Housing

Author

Listed:
  • Mihnea Constantinescu

    (Bank of Lithuania)

  • Povilas Lastauskas

    (Bank of Lithuania and Faculty of Economics, Vilnius University)

Abstract
We employ the recent Jord? et al. (2016) and Knoll et al. (2017) datasets to investigate the long-run relationship between house prices and credit volume, allowing for interest rate, real exchange rate and real gross domestic product (GDP). We refine the analysis using more recent data at the quarterly-level to define relevant co-integrating relationships across a number of European economies. Housing, GDP and credit cross-sectional averages are included in the analysis to detect potential spill-over effects. Empirical results indicate cross-country heterogeneities and an uneven feedback mechanism between credit and housing - the full loop is established only for several countries in the dataset. Important results relate to the statistical properties of the housing time series. Grouping countries for panel-like econometric exercises may lead to spurious regression results, poor inference and misleading policy implications. Short-run dynamics, compared to the long-run may often lead to contradicting policy advice if the order of integration of the house price series is not properly accounted for. Accounting for spatial patterns of house prices which cannot be attributed to global output shocks may provide useful insights into policy making.

Suggested Citation

  • Mihnea Constantinescu & Povilas Lastauskas, 2017. "The Knotty Interplay Between Credit and Housing," Bank of Lithuania Working Paper Series 45, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:45
    as

    Download full text from publisher

    File URL: https://www.lb.lt/en/publications/no-45-the-knotty-interplay-between-credit-and-housing
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marco Barassi, 2005. "On KPSS with GARCH errors," Economics Bulletin, AccessEcon, vol. 3(55), pages 1-12.
    2. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
    3. Gerhard Rünstler & Marente Vlekke, 2018. "Business, housing, and credit cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(2), pages 212-226, March.
    4. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
    5. Katharina Knoll & Moritz Schularick & Thomas Steger, 2017. "No Price Like Home: Global House Prices, 1870-2012," American Economic Review, American Economic Association, vol. 107(2), pages 331-353, February.
    6. Shiller, Robert J. & Perron, Pierre, 1985. "Testing the random walk hypothesis : Power versus frequency of observation," Economics Letters, Elsevier, vol. 18(4), pages 381-386.
    7. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2017. "Macrofinancial History and the New Business Cycle Facts," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 213-263.
    8. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 533-545, March.
    9. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2016. "Long-Run Effects in Large Heterogeneous Panel Data Models with Cross-Sectionally Correlated Errors," Advances in Econometrics, in: Essays in Honor of man Ullah, volume 36, pages 85-135, Emerald Group Publishing Limited.
    10. 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.
    11. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Statistics Norway, Research Department.
    12. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2017. "Is There a Debt-Threshold Effect on Output Growth?," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 135-150, March.
    13. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    14. Holly, Sean & Pesaran, M. Hashem & Yamagata, Takashi, 2010. "A spatio-temporal model of house prices in the USA," Journal of Econometrics, Elsevier, vol. 158(1), pages 160-173, September.
    15. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
    16. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    17. Kim, Kiwhan & Schmidt, Peter, 1993. "Unit root tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 59(3), pages 287-300, October.
    18. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2009. "Identification of New Keynesian Phillips Curves from a Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1481-1502, October.
    19. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
    20. Simon Reese & Joakim Westerlund, 2016. "Panicca: Panic on Cross‐Section Averages," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(6), pages 961-981, September.
    21. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    22. Adams, Zeno & Füss, Roland, 2010. "Macroeconomic determinants of international housing markets," Journal of Housing Economics, Elsevier, vol. 19(1), pages 38-50, March.
    23. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    24. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-1727, November.
    25. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633659, September.
    26. Holly, Sean & Hashem Pesaran, M. & Yamagata, Takashi, 2011. "The spatial and temporal diffusion of house prices in the UK," Journal of Urban Economics, Elsevier, vol. 69(1), pages 2-23, January.
    27. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    28. Trevor Fitzpatrick & Kieran Mcquinn, 2007. "House Prices And Mortgage Credit: Empirical Evidence For Ireland," Manchester School, University of Manchester, vol. 75(1), pages 82-103, January.
    29. Igan, Deniz & Kabundi, Alain & Nadal De Simone, Francisco & Pinheiro, Marcelo & Tamirisa, Natalia, 2011. "Housing, credit, and real activity cycles: Characteristics and comovement," Journal of Housing Economics, Elsevier, vol. 20(3), pages 210-231, September.
    30. Alexander Chudik & M. Hashem Pesaran & Elisa Tosetti, 2011. "Weak and strong cross‐section dependence and estimation of large panels," Econometrics Journal, Royal Economic Society, vol. 14(1), pages 45-90, February.
    31. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    32. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, July.
    33. Lee, Hyung S. & Amsler, Christine, 1997. "Consistency of the KPSS unit root test against fractionally integrated alternative," Economics Letters, Elsevier, vol. 55(2), pages 151-160, August.
    34. Boris Hofmann, 2001. "The determinants of private sector credit in industrialised countries: do property prices matter?," BIS Working Papers 108, Bank for International Settlements.
    35. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2019. "Credit Supply and the Housing Boom," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1317-1350.
    36. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    37. Westerlund, Joakim & Narayan, Paresh, 2014. "Panel versus GARCH information in unit root testing with an application to financial markets," Economic Modelling, Elsevier, vol. 41(C), pages 173-176.
    38. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    39. Natalia Bailey & Sean Holly & M. Hashem Pesaran, 2016. "A Two‐Stage Approach to Spatio‐Temporal Analysis with Strong and Weak Cross‐Sectional Dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(1), pages 249-280, January.
    40. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    41. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    42. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    43. Simon Stevenson, 2008. "Modeling Housing Market Fundamentals: Empirical Evidence of Extreme Market Conditions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(1), pages 1-29, March.
    44. Jushan Bai, 2013. "Fixed‐Effects Dynamic Panel Models, a Factor Analytical Method," Econometrica, Econometric Society, vol. 81(1), pages 285-314, January.
    45. Stremmel, Hanno, 2015. "Capturing the financial cycle in Europe," Working Paper Series 1811, European Central Bank.
    46. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    47. Giles, Judith A & Giles, David E A, 1993. "Pre-test Estimation and Testing in Econometrics: Recent Developments," Journal of Economic Surveys, Wiley Blackwell, vol. 7(2), pages 145-197, June.
    48. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    49. Anundsen, André K. & Jansen, Eilev S., 2013. "Self-reinforcing effects between housing prices and credit," Journal of Housing Economics, Elsevier, vol. 22(3), pages 192-212.
    50. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    51. Clive, W.J. & Lin, Jin-Lung, 1995. "Causality in the Long Run," Econometric Theory, Cambridge University Press, vol. 11(3), pages 530-536, June.
    52. repec:taf:jnlbes:v:30:y:2012:i:3:p:351-357 is not listed on IDEAS
    53. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2014. "Constructing Multi-Country Rational Expectations Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(6), pages 812-840, December.
    54. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    55. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    56. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633239, September.
    57. Westerlund, Joakim & Urbain, Jean-Pierre, 2015. "Cross-sectional averages versus principal components," Journal of Econometrics, Elsevier, vol. 185(2), pages 372-377.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Iacovos Ioannou, 2018. "Housing Price, Credit, and Output Cycles: How Domestic and External Shocks Impact Lithuania's Credit," IMF Working Papers 2018/160, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Holly, Sean & Hashem Pesaran, M. & Yamagata, Takashi, 2011. "The spatial and temporal diffusion of house prices in the UK," Journal of Urban Economics, Elsevier, vol. 69(1), pages 2-23, January.
    2. Gioldasis, Georgios & Musolesi, Antonio & Simioni, Michel, 2023. "Interactive R&D spillovers: An estimation strategy based on forecasting-driven model selection," International Journal of Forecasting, Elsevier, vol. 39(1), pages 144-169.
    3. Markus Eberhardt & Francis Teal, 2008. "Modeling Technology and Technological Change in Manufacturing: How do Countries Differ?," CSAE Working Paper Series 2008-12, Centre for the Study of African Economies, University of Oxford.
    4. Georgios Gioldasis & Antonio Musolesi & Michel Simioni, 2021. "Interactive R&D Spillovers: An estimation strategy based on forecasting-driven model selection," SEEDS Working Papers 0621, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jun 2021.
    5. Md. Shahiduzzaman & Khorshed Alam, 2014. "A reassessment of energy and GDP relationship: the case of Australia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 16(2), pages 323-344, April.
    6. Georgios Gioldasis & Antonio Musolesi & Michel Simioni, 2021. "Interactive R&D Spillovers: an estimation strategy based on forecasting-driven model selection," Working Papers hal-03224910, HAL.
    7. Arnab Bhattacharjee & Jan Ditzen & Sean Holly, 2022. "Spatial and Spatio-Temporal Error Correction, Networks and Common Correlated Effects," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Panel Modeling, Micro Applications, and Econometric Methodology, volume 43, pages 37-60, Emerald Group Publishing Limited.
    8. Anundsen, André K. & Jansen, Eilev S., 2013. "Self-reinforcing effects between housing prices and credit," Journal of Housing Economics, Elsevier, vol. 22(3), pages 192-212.
    9. Chakraborty, Saptorshee Kanto & Mazzanti, Massimiliano, 2020. "Energy intensity and green energy innovation: Checking heterogeneous country effects in the OECD," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 328-343.
    10. Eibinger, Tobias & Deixelberger, Beate & Manner, Hans, 2024. "Panel data in environmental economics: Econometric issues and applications to IPAT models," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    11. Naima Chrid & Sami Saafi & Mohamed Chakroun, 2021. "Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 811-841, June.
    12. Bonizzi, Bruno, 2017. "Institutional investors’ allocation to emerging markets: A panel approach to asset demand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 47-64.
    13. Cynthia Fan Yang, 2021. "Common factors and spatial dependence: an application to US house prices," Econometric Reviews, Taylor & Francis Journals, vol. 40(1), pages 14-50, January.
    14. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    15. J. B. Qian, 2016. "Estimation of Panel Model with Spatial Autoregressive Error and Common Factors," Computational Economics, Springer;Society for Computational Economics, vol. 47(3), pages 367-399, March.
    16. Rafaty, R. & Dolphin, G. & Pretis, F., 2020. "Carbon pricing and the elasticity of CO2 emissions," Cambridge Working Papers in Economics 20116, Faculty of Economics, University of Cambridge.
    17. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    18. Philip Kerner & Torben Klarl & Tobias Wendler, 2021. "Green Technologies, Environmental Policy and Regional Growth," Bremen Papers on Economics & Innovation 2104, University of Bremen, Faculty of Business Studies and Economics.
    19. Juodis, Artūras & Karabiyik, Hande & Westerlund, Joakim, 2021. "On the robustness of the pooled CCE estimator," Journal of Econometrics, Elsevier, vol. 220(2), pages 325-348.
    20. Costantini, Valeria & Martini, Chiara, 2010. "The causality between energy consumption and economic growth: A multi-sectoral analysis using non-stationary cointegrated panel data," Energy Economics, Elsevier, vol. 32(3), pages 591-603, May.

    More about this item

    Keywords

    house prices; credit; exogeneity and long-run relationships; policy; spill-overs;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lie:wpaper:45. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aurelija Proskute (email available below). General contact details of provider: https://edirc.repec.org/data/lbanklt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.