Journal Article

House prices, money, credit, and the macroeconomy

Charles Goodhart and Boris Hofmann

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 24, issue 1, pages 180-205
Published in print January 2008 | ISSN: 0266-903X
Published online January 2008 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grn009
House prices, money, credit, and the macroeconomy

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This paper assesses the links between money, credit, house prices, and economic activity in industrialized countries over the last three decades. The analysis is based on a fixed-effects panel vector autoregression, estimated using quarterly data for 17 industrialized countries spanning the period 1970–2006. The main results of the analysis are the following. (i) There is evidence of a significant multidirectional link between house prices, monetary variables, and the macroeconomy. (ii) The link between house prices and monetary variables is found to be stronger over a more recent sub-sample from 1985 to 2006. (iii) The effects of shocks to money and credit are found to be stronger when house prices are booming.

Keywords: house prices; wealth effects; collateral; financial liberalization; money and credit; E21; E22; E31; E32; E44; E47; E50; R21; R31

Journal Article.  10450 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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