The Interaction between House Prices and Loans for House Purchase: The Spanish Case
51 Pages Posted: 8 May 2006
Date Written: February 16, 2006
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: Suggested Citation