House Prices, Money, Credit, and the Macroeconomy

Posted: 2 Jul 2008

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Multiple version iconThere are 2 versions of this paper

Date Written: spring 2008

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

Suggested Citation

Goodhart, Charles A.E., House Prices, Money, Credit, and the Macroeconomy (spring 2008). Oxford Review of Economic Policy, Vol. 24, Issue 1, pp. 180-205, 2008, Available at SSRN: https://ssrn.com/abstract=1154423 or http://dx.doi.org/grn009

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

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