Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 13/2011: Self-reinforcing effects between housing prices and credit: Evidence from Norway

André K. Anundsen () and Eilev S. Jansen
Additional contact information
André K. Anundsen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Eilev S. Jansen: Statistics Norway

Abstract: The interaction between housing prices and household borrowing in Norway is estimated in a simultaneous setting in the long and the short run.The long run dependence is analyzed within a cointegrated vector autoregression in real housing prices, real disposable household income and real household debt, conditioning on the real after tax interest rate, the number of house transactions and the volume of housing capital. We identify two cointegrating equations which determine equilibrium housing prices and household debt, respectively. The long run equations are embedded in a system of two error-correction equations which is estimated simultaneously. The model yields meaningful short and long term effects when estimated on the sample 1986q2-2008q4 and impulse responses demonstrate that there are selfreinforcing feedback effects between the two variables of interest.

Keywords: Housing prices; household borrowing; financial accelerator

JEL-codes: C32; C52; E44; G21; G28

24 pages, April 28, 2011

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