The Interaction between House Prices and Loans for House Purchase: The Spanish Case

51 Pages Posted: 8 May 2006

Date Written: February 16, 2006

Abstract

The aim of this paper is to analyse, using a vector error-correction model (VECM), the dynamic interaction between house prices and loans for house purchase in Spain. The results show that both variables are interdependent in the long run: loans for house purchase depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long-run determinants. In contrast, disequilibria in house prices are corrected only through changes in this variable. As for short-run dynamics, the results show that the two variables have a positive contemporaneous impact on each other, indicating the existence of mutally reinforcing cycles in both variables.

Keywords: Mortgage Debt, Housing Prices, Error Correction

JEL Classification: E32, G21, R21

Suggested Citation

Gimeno, Ricardo and Martinez-Carrascal, Carmen, The Interaction between House Prices and Loans for House Purchase: The Spanish Case (February 16, 2006). Banco de Espana Research Paper No. WP-0605, Available at SSRN: https://ssrn.com/abstract=901145 or http://dx.doi.org/10.2139/ssrn.901145

Ricardo Gimeno (Contact Author)

Banco de España ( email )

Madrid 28014
Spain

Carmen Martinez-Carrascal

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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