House Prices, Money, Credit and the Macroeconomy

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.