2/2017 Juan Carlos Cuestas, Merike Kukk. Asymmetries in the interaction between housing prices and housing credit in Estonia

Working Papers of Eesti Pank 2/2017

This paper investigates the mutual dependence between housing prices and housing credit in Estonia, a country which experienced rapid debt accumulation during the 2000s and big swings in house prices during that period. We use Bayesian econometric methods on data spanning 2000–2015. The estimations show the interdependence between house prices and housing credit. More importantly, housing credit shocks had a stronger effect on house prices in the period of declining credit turnover. The asymmetry in the linkage between housing credit and house prices highlights important policy implications, in that if central banks increase capital buffers during good times, they can release credit conditions during hard times to alleviate the negative spillover into house prices and the real economy.

DOI: 10.23656/25045520/22017/0140

JEL Codes: E32, E44, E51, G21, R21, R31

Keywords: house prices, housing credit, credit cycle, asymmetries, Bayesian

Corresponding author’s e-mail address: juan.carlos.cuestas [at] eestipank.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank or the Eurosystem.