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Bubbles and Crises: The Role of House Prices and Credit
Author(s) -
Anundsen André K.,
Gerdrup Karsten,
Hansen Frank,
KraghSørensen Kasper
Publication year - 2016
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2503
Subject(s) - leverage (statistics) , boom , economics , financial crisis , house price , financial stability , economic bubble , logit , econometrics , predictive power , financial market , monetary economics , financial economics , finance , macroeconomics , financial system , machine learning , environmental engineering , computer science , engineering , philosophy , epistemology
Summary This paper utilizes quarterly panel data for 20 OECD countries over the period 1975:Q1–2014:Q2 to explore the importance of house prices and credit in affecting the likelihood of a financial crisis. Estimating a set of multivariate logit models, we find that booms in credit to both households and non‐financial enterprises are important to account for when evaluating the stability of the financial system. In addition, we find that global housing market developments have predictive power for domestic financial stability. Finally, econometric measures of bubble‐like behavior in housing and credit markets enter with positive and highly significant coefficients. Specifically, we find that the probability of a crisis increases markedly when bubble‐like behavior in house prices coincides with high household leverage. Copyright © 2016 John Wiley & Sons, Ltd.