House Prices, Credit and Willingness to Lend

21 Pages Posted: 13 Nov 2011

See all articles by Sarah Carrington

Sarah Carrington

Independent

Jakob B. Madsen

University of Copenhagen - Department of Economics

Date Written: December 2011

Abstract

This article 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, but 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 USA over a long period, and for eight 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.

JEL Classification: E44, E51

Suggested Citation

Carrington, Sarah and Madsen, Jakob Bruechner, House Prices, Credit and Willingness to Lend (December 2011). Economic Record, Vol. 87, Issue 279, pp. 537-557, 2011, Available at SSRN: https://ssrn.com/abstract=1958469 or http://dx.doi.org/10.1111/j.1475-4932.2011.00762.x

Jakob Bruechner Madsen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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