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The role of market imperfections in the relationship between housing prices and household credit: Evidence from T aiwan
Author(s) -
Wei AnPin,
Huang WeiLing,
Yang ChihYuan,
Chen MingChi
Publication year - 2013
Publication title -
asian‐pacific economic literature
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.232
H-Index - 21
eISSN - 1467-8411
pISSN - 0818-9935
DOI - 10.1111/apel.12022
Subject(s) - economics , boom , bust , bond market , monetary economics , credit crunch , convergence (economics) , fragility , financial fragility , financial crisis , macroeconomics , chemistry , environmental engineering , engineering
Given the credit market imperfections in T aiwan, this paper examines the threshold effects in the adjustment towards the long‐run equilibrium relationship between housing prices and household credit. The empirical findings verify the potential for regime shifts in the dynamically adjusted relationship between housing prices and household credit. Only when the benefits cover the cost of market imperfections, do housing and credit markets trigger convergence to their long‐run equilibrium. The hidden effect of the limitations on housing and credit markets is to raise the thresholds of the self‐adjustment mechanisms. As a result, economic boom‐bust cycles will be more severe and increase the fragility of financial sectors.