Expectations, credit conditions, and housing boom-bust: Evidence from SVAR with sign and zero restrictions

Xutao Ma and Zhen Zhang

Journal of Banking & Finance, 2022, vol. 134, issue C

Abstract: Using a SVAR model with sign and zero restrictions, we propose a novel scheme to identify expectation, credit supply and mortgage rate shocks with the aim of exploring their role in the 2000s housing boom-bust cycles. Overall, credit supply and mortgage rate shocks are two major drivers of housing fluctuations instead of expectation shock. However, the relative importance of the three shocks varies considerably over different episodes. Specifically, gradual rise in house prices during 1999-2002 is mainly due to appreciation expectations. Such conclusion is reversed over boom-bust cycles. Compared with less than 10% contribution of expectation shock, credit supply and mortgage rate shocks become the two most important drivers of housing boom, with 20% and 24.5% contribution, respectively. In the bust, 20.2% and 23.1% of decline in house prices are associated with credit supply and mortgage rate shocks, respectively, while only 7.4% can be attributed to expectation shock.

Keywords: House prices; Credit supply; Mortgage rate; Expectations; SVAR; Sign and zero restrictions (search for similar items in EconPapers)
JEL-codes: E32 E51 E71 R31 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002818

DOI: 10.1016/j.jbankfin.2021.106330

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