Housing and credit markets in Italy in times of crisis

Michele Loberto and Francesco Zollino ()
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Francesco Zollino: Bank of Italy

No 1087, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We investigate the determinants of Italian house prices and residential investments in a structural model with possible disequilibria in the market for lending to both households and firms in the building sector. Based on a structural approach that takes into account the multifold relationships between demand and supply within the housing and the credit markets, we find that, while house prices react mostly to disposable income and demographic pressures, lending conditions also exert a significant impact. During the recent crises the contribution of declining bank rates to household lending was limited, due to the greater deleveraging needs of Italian banks. Conventional monetary policy has supported house prices, albeit with declining intensity as policy rates have gradually approached the lower bound. At the same time, unconventional monetary policy measures have sustained house prices via their effect on Italian sovereign spreads, which have shrunk by a sizeable amount since they peaked in the period between late 2011 and early 2013. Finally, we find that house price developments stayed in line with the fundamentals, during both the global financial and sovereign debt crisis, with only minor and occasional discrepancies.

Keywords: house prices; credit; system of simultaneous equations (search for similar items in EconPapers)
JEL-codes: E52 G21 R20 R30 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eur, nep-mac and nep-ure
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Citations: View citations in EconPapers (5)

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