Seminar: House prices and bank lending channel over the credit cycle

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Dirk Bezemer (RUG)

Discussant: Remco Mocking (CPB)

Language: English

Registration: Please register by sending an email to seminars@cpb.nl.

Abstract subject
Asset market conditions affect output growth through changes in bank lending. Our paper is the first to analyze how this channel changes over the credit cycle. We use newly collected data for 37 countries over 1970-2012 to construct measures for the upswing (‘credit boom’) and downswing (‘credit bust’) phases of the credit cycle. We find that real income grows faster during a credit boom in countries where house prices rise more and where banks have a higher share of mortgage credit in total credit. In a second analysis, we find that industries which are more dependent on external finance experience growth in value added which is significantly higher in a credit boom and significantly lower in a credit bust when banks in their economy have a higher share of mortgage credit in total credit. Since credit cycle upswings transform bank balance sheets such that economies are more vulnerable to the credit market downturn that follows, the policy implication is that macroprudential monitoring should take place over the entire credit cycle.

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