To Segregate or to Aggregate?: Uncovering the Real Effects of Credit on Housing Price Dynamics

57 Pages Posted: 31 Aug 2018 Last revised: 30 Dec 2018

See all articles by Kun Duan

Kun Duan

University of Southampton - Southampton Business School

Tapas Mishra

Southampton Business School, University of Southampton

Mamata Parhi

Swansea University

Simon Wolfe

University of Southampton - School of Management; University of Southampton - Southampton Business School

Date Written: August 22, 2018

Abstract

Credit is a crucial instrument in asset price determination, yet existing research has produced conflicting evidence on its real impact, especially during episodes of heightened uncertainty. This paper develops a framework to show that by segregating credit into credit to the real economy and credit to the asset markets a clear picture of its real effects on housing demand and supply channels emerge. Through this mechanism, we establish a meaningful relationship between credit and housing prices. Using a quarterly dataset for nine industrialized countries, our panel VAR estimation shows that credit to the real economy and housing prices depict a positive bi-directional relationship, whereas credit to the asset markets exerts a negative but negligible impact on housing prices in the short-run, and a strong positive effect in the long-run. Robustness tests confirm our baseline predictions.

Keywords: Disaggregated Credit, Housing Prices, Policy Uncertainty, Business Cycles, Panel VAR

JEL Classification: E3, E5, R3

Suggested Citation

Duan, Kun and Mishra, Tapas and Parhi, Mamata and Wolfe, Simon, To Segregate or to Aggregate?: Uncovering the Real Effects of Credit on Housing Price Dynamics (August 22, 2018). Available at SSRN: https://ssrn.com/abstract=3236678 or http://dx.doi.org/10.2139/ssrn.3236678

Kun Duan (Contact Author)

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Tapas Mishra

Southampton Business School, University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Mamata Parhi

Swansea University ( email )

Simon Wolfe

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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