House Prices, Credit and Willingness to Lend

Sarah Carrington and Jakob Madsen

No 23-09, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper establishes a Tobin’s q model in which house prices fluctuate around their long run equilibrium due to fluctuations in credit availability and income. It is shown that house prices are positively related to credit in the short run, however, negatively related to the availability of credit in the long run. Using survey data on banks’ willingness to lend and data on disintermediation for the U.S. over a long period and for nine OECD countries over a short period it is shown that the availability of credit is the principal variable driving house prices around their long run equilibrium. Shocks to interest rates and income have only secondary effects on house price fluctuations.

Keywords: Willingness to lend; Tobin’s q. House prices (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-08
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: House Prices, Credit and Willingness to Lend (2011)
Working Paper: House prices, credit and willingness to lend (2011)
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