Credit and the natural rate of interest

Charles Goodhart () and Boris Hofmann ()
Additional contact information
Charles Goodhart: Financial Markets Group, Room R414, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK., http://fmg.lse.ac.uk/
Boris Hofmann: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 888, Working Paper Series from European Central Bank

Abstract: This paper assesses the linkages between money, credit, house prices and economic activity in industrialised countries over the last three decades. The analysis is based on a fixed-effects panel VAR estimated using quarterly data for 17 industrialized countries spanning the period 1970-2006. The main results of the analysis are the following: (i) There is evidence of a significant multidirectional link between house prices, monetary variables and the macroeconomy. (ii) The link between house prices and monetary variables is found to be stronger over a more recent sub-sample from 1985 till 2006. (iii) The effects of shocks to money and credit are found to be stronger when house prices are booming. The last two results are, however, in general not statistically significant due to the large confidence bands of the impulse responses. JEL Classification: E21, E22, E31, E32, E44, E47, E50, R21, R31.

Keywords: House prices; wealth effects; collateral; financial liberalisation; money and credit. (search for similar items in EconPapers)
Date: Written 2008-04
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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20080888

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