The Long-Run Relationship Between Financial Development and House Prices

45 Pages Posted: 8 Jul 2020

See all articles by Sefa Awaworyi Churchill

Sefa Awaworyi Churchill

RMIT University - School of Economics, Finance and Marketing

Kris Ivanovski

Monash University - Department of Economics

Kwabena Mintah

affiliation not provided to SSRN

Quanda Zhang

Federation University Australia - Federation Business School

Date Written: June 15, 2020

Abstract

We examine the relationship between financial development and house prices in the Group of Seven (G7) countries over the period 1870 to 2016. We use parametric panel data models that incorporate interactive fixed effects and non-parametric models that allow us to examine non-linearities and the time-varying nature of the relationship. Our parametric estimates show a positive relationship between financial development and house prices. The results from our non-parametric model reinforce this finding but also show evidence of a negative effect of financial development prior to the mid-twentieth century, suggesting a time-varying non-linear impact. We find that inequality and mortgage loans are mechanisms through which financial development transmits to house prices. Financial crisis moderates the relationship between financial development and house prices, although this works only through sovereign defaults. Our findings are robust to a suite of robustness and sensitivity checks.

Keywords: financial development, house prices, credit, mortgage, inequality

JEL Classification: F65, R21, R31, D63, G21

Suggested Citation

Awaworyi Churchill, Sefa and Ivanovski, Kris and Mintah, Kwabena and Zhang, Quanda, The Long-Run Relationship Between Financial Development and House Prices (June 15, 2020). Available at SSRN: https://ssrn.com/abstract=3627410 or http://dx.doi.org/10.2139/ssrn.3627410

Sefa Awaworyi Churchill (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Building 80
445 Swanston Street
Melbourne, Victoria 3000
Australia

Kris Ivanovski

Monash University - Department of Economics ( email )

Australia

Kwabena Mintah

affiliation not provided to SSRN

Quanda Zhang

Federation University Australia - Federation Business School ( email )

University Dr.
Ballarat, Victoria 3350
Australia

HOME PAGE: http://https://sites.google.com/view/quandazhang

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