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THE INTERACTION BETWEEN MORTGAGE FINANCING AND
HOUSING PRICES IN GREECE

Sophocles N. Brissimis
Bank of Greece and University of Piraeus

Thomas Vlassopoulos
European Central Bank

ABSTRACT

Although the close empirical relationship between the evolution of mortgage lending and housing prices is well established in the literature, the direction of causation is less clear from a theoretical standpoint. We apply multivariate cointegration techniques in order to address this issue empirically for the Greek economy. Our results, based on a cointegration relationship that we identify as a mortgage loan demand equation, indicate that housing prices do not adjust to disequilibria in the market for housing loans. This suggests that in the long run the causation does not run from mortgage lending to housing prices. In the short run we find evidence of a contemporaneous bi-directional dependence.

Keywords: Housing loans; Housing prices; Multivariate cointegration

JEL classification: G21, R21, C32

Acknowledgements: We would like to thank Heather Gibson, Dora Kosma and Nikos Magginas for helpful comments and discussions, and Vassilis Georgakopoulos for sharing his interest rate series. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Greece.

Correspondence:

Thomas Vlassopoulos
European Central Bank,
Kaiserstrasse 29,
60311 Frankfurt am Main, Germany.
Tel.: +49 69 13447195
Fax: +49 69 13445757
Email: thomas.vlassopoulos@ecb.int


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