House Prices, Money, Credit, and the Macroeconomy

Abstract:     
This paper assesses the links between money, credit, house prices, and economic activity in industrialized countries over the last three decades. The analysis is based on a fixed-effects panel vector autoregression, 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 to 2006. (iii) The effects of shocks to money and credit are found to be stronger when house prices are booming.

Keywords: house prices, wealth effects, collateral, financial liberalization, money and credit

JEL Classification: E21, E22, E31, E32, E44, E47, E50, R21, R31

Accepted Paper Series