The empirical modelling of house prices and debt revisited: a policy-oriented perspective

Pål Boug (), Håvard Hungnes and Takamitsu Kurita ()
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Pål Boug: Statistics Norway
Takamitsu Kurita: Kyoto Sangyo University

Empirical Economics, 2024, vol. 66, issue 1, No 12, 369-404

Abstract: Abstract The recent boom in house prices in many countries during the COVID-19 pandemic and the possibility of household financial distress are of concern among some central banks. We revisit the empirical modelling of house prices and household debt with a policy-oriented perspective using Norwegian data over the last four decades within the cointegrated VAR model. Our findings suggest, in line with previous work, a long-run mutually reinforcing relationship between these financial magnitudes, and thus the potential for the build-up of financial instabilities and spillover effects to the real economy. Applying a policy control analysis, we find that both house prices and debt are controllable magnitudes to some pre-specified target levels through the mortgage interest rate, which enables the central bank to reduce large fluctuations and bubble tendencies in the housing market. The present control analysis thus provides some useful policy implications from empirically relevant representations of two important financial factors entering the decision process of the policy maker.

Keywords: House prices; Household debt; Econometric modelling; Cointegrated VAR; Policy control analysis; Simulation (search for similar items in EconPapers)
JEL-codes: C32 C53 E52 R21 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-023-02461-3

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