Endogenous Bank Credit and its Link to Housing in OECD Countries

Levy Economics Institute of Bard College Working Paper No. 750

29 Pages Posted: 1 Feb 2013

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Ana González

Cambridge Econometrics Ltd

Date Written: January 31, 2013

Abstract

The relevant economic literature frequently focuses on the impact of credit shocks on housing prices. The doctrine of the “New Consensus Macroeconomics” completely ignores bank credit. The “Great Recession,” however, has highlighted the significance of bank credit. The purpose of this contribution is to revisit this important macroeconomic variable. We propose to endogenize the volume of bank credit by paying special attention to those variables that are related to the real estate market, which can be considered key to the evolution of bank credit. Our theoretical hypothesis is tested by means of a sample of 15 Organisation for Economic Co-operation and Development (OECD) economies from 1970 to 2011. We apply the cointegration technique for the latter purpose, which permits the modeling of the long-run equilibrium relationship and the dynamics of the short run, along with an error-correction term.

Keywords: Bank Credit, Collateral Channel, Housing Market, OECD Countries, Empirical Modeling

JEL Classification: C22, R31

Suggested Citation

Arestis, Philip and González, Ana, Endogenous Bank Credit and its Link to Housing in OECD Countries (January 31, 2013). Levy Economics Institute of Bard College Working Paper No. 750. Available at SSRN: https://ssrn.com/abstract=2209992 or http://dx.doi.org/10.2139/ssrn.2209992

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Ana González

Cambridge Econometrics Ltd ( email )

Reuben House
Covent Garden
Cambridge, CB1 2HT
United Kingdom

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