Working Paper: CEPR ID: DP4797
Authors: Stefan Gerlach; Wensheng Peng
Abstract: This Paper studies the relationship between residential property prices and lending in Hong Kong. This is an interesting topic for three reasons. First, swings in property prices have been extremely large and frequent in Hong Kong. Second, under the currency board regime, monetary policy cannot be used to guard against asset price swings. Third, despite the collapse in property prices since 1998, the banking sector remains sound. While the contemporaneous correlation between lending and property prices is large, our results suggest that the direction of influence goes from property prices to bank credit rather than conversely.
Keywords: bank lending; Hong Kong; property prices
JEL Codes: E32; E42; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank lending (G21) | property prices (R31) |
| maximum loan-to-value ratio (G21) | bank lending (G21) |
| property prices (R31) | economic activity (E20) |
| property prices (R31) | bank lending (G21) |
| property prices (R31) | bank credit (G21) |