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House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy

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  4. Vol. 54, Issue 2
  5. pp. 199–221

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Cronin, D., McQuinn, K. House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy. Credit and Capital Markets – Kredit und Kapital, 54(2), 199-221. https://doi.org/10.3790/ccm.54.2.199
Cronin, David and McQuinn, Kieran "House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy" Credit and Capital Markets – Kredit und Kapital 54.2, 2021, 199-221. https://doi.org/10.3790/ccm.54.2.199
Cronin, David/McQuinn, Kieran (2021): House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy, in: Credit and Capital Markets – Kredit und Kapital, vol. 54, iss. 2, 199-221, [online] https://doi.org/10.3790/ccm.54.2.199
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House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy

Cronin, David | McQuinn, Kieran

Credit and Capital Markets – Kredit und Kapital, Vol. 54 (2021), Iss. 2 : pp. 199–221

3 Citations (CrossRef)

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.54.2.199
Language
English
Pages
23
Keywords

Author Details

David Cronin, Central Bank of Ireland, and Economic and Social Research Institute (ESRI), respectively.

Kieran McQuinn, Central Bank of Ireland, and Economic and Social Research Institute (ESRI), respectively. Corresponding author.

Cited By

  1. How supply and demand affect national house prices: The case of Ireland

    Egan, Paul | McQuinn, Kieran | O'Toole, Conor

    Journal of Housing Economics, Vol. 65 (2024), Iss. P.102006

    https://doi.org/10.1016/j.jhe.2024.102006 [Citations: 0]

  2. Regime switching and the responsiveness of prices to supply: The case of the Irish housing market

    Egan, Paul | McQuinn, Kieran

    The Quarterly Review of Economics and Finance, Vol. 87 (2023), Iss. P.82

    https://doi.org/10.1016/j.qref.2022.12.001 [Citations: 2]

  3. Credit and House Prices in the Irish Residential Market

    Egan, Paul | McQuinn, Kieran | O’Toole, Conor

    Intereconomics, Vol. 59 (2024), Iss. 5 P.293

    https://doi.org/10.2478/ie-2024-0057 [Citations: 0]

References

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  13. McCarthy, Y./McQuinn, K. (2017): Credit Conditions in a Boom and Bust Property Market: Insights for Macro-Prudential Policy. The Quarterly Review of Economics and Finance, Vol. 64, May, 171–182.  Google Scholar
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  20. Mian, A./Sufi, A./Verner, E. (2020): How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels. The Journal of Finance, Vol. 75(2), 949–994.  Google Scholar
  21. Muellbauer, J./Murphy, A. (1997): Booms and Busts in the UK Housing Market. Economic Journal, Vol. 107, 1701–1727.  Google Scholar
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  26. Basel Committee on Banking Supervision (2010): Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems. Bank of International Settlements.  Google Scholar
  27. Brunnermeier, M. (2009): Deciphering the Liquidity and Credit Crunch 2007–2008. Journal of Economic Perspectives, Vol. 23(1), 77–100.  Google Scholar
  28. Cameron, G./Muellbauer, J./Murphy, A. (2006): Was There a British House Price Bubble? Evidence from a Regional Panel. CEPR Discussion Paper 5619.  Google Scholar
  29. Central Bank of Ireland (2020): Quarterly Financial Accounts Q1 2020. Statistical release.  Google Scholar
  30. Central Statistics Office (2020): Household Finance and Consumption Survey 2020.  Google Scholar
  31. Duca, J./Muellbauer, J./Murphy, A. (2010): Housing Markets and the Financial Crisis of 2007–2009: Lessons for the Future. Journal of Financial Stability, Vol. 6(4), 203–217.  Google Scholar
  32. Duca, J./Muellbauer, J./Murphy, A. (2011): House Prices and Credit Constraints: Making Sense of the US Experience. Economic Journal, Vol. 121(552), 533–551.  Google Scholar
  33. FitzGerald, J. (2018): National Accounts for a Global Economy: the Case of Ireland. Special article Quarterly Economic Commentary, Economic and Social Research Institute, June.  Google Scholar
  34. Fitzpatrick, T./McQuinn, K. (2007): House Prices and Mortgage Credit: Empirical Evidence for Ireland. The Manchester School, Vol. 75, 1, 82–103.  Google Scholar
  35. Kelly, J./Everett, M. (2004): Financial Liberalisation and Economic Growth in Ireland. Central Bank of Ireland Quarterly Bulletin, Autumn 91–112.  Google Scholar
  36. Kelly, R./McQuinn, K. (2014): On the Hook for Impaired Bank Lending: Do Sovereign-Bank Inter-linkages Affect the Net Cost of a Fiscal Stimulus? International Journal of Central Banking, Vol. 10(2), 95–128.  Google Scholar
  37. McCarthy, Y./McQuinn, K. (2017): Credit Conditions in a Boom and Bust Property Market: Insights for Macro-Prudential Policy. The Quarterly Review of Economics and Finance, Vol. 64, May, 171–182.  Google Scholar
  38. Meen, G. (1996): Ten Propositions in UK Housing Macroeconomics: An Overview of the1980s and early 1990s. Urban Studies, Vol. 33(3), 425–44.  Google Scholar
  39. Meen, G. (2000): Housing Cycles and Efficiency. Scottish Journal of Political Economy, Vol. 47(2), 114–40.  Google Scholar
  40. Mian, A./Sufi, A. (2014): What Explains the 2007–2009 Drop in Employment. Econometrica, Vol. 82(6), 2197–2223.  Google Scholar
  41. Mian, A./Sufi, A. (2018): Finance and Business Cycles: The Credit-Driven Household Demand Channel. The Journal of Economic Perspectives, Vol. 32(3), Summer, 31–58.  Google Scholar
  42. Mian, A./Rao, K./Sufi, A. (2013): Household Balance Sheets, Consumption and the Economic Slump. The Quarterly Journal of Economics, Vol. 128(4), 1687–1726.  Google Scholar
  43. Mian, A./Sufi, A./Verner, E. (2017): Household Debt and Business Cycles Worldwide. The Quarterly Journal of Economics, Vol. 132(4), 1755–1817.  Google Scholar
  44. Mian, A./Sufi, A./Verner, E. (2020): How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels. The Journal of Finance, Vol. 75(2), 949–994.  Google Scholar
  45. Muellbauer, J./Murphy, A. (1997): Booms and Busts in the UK Housing Market. Economic Journal, Vol. 107, 1701–1727.  Google Scholar
  46. Peek, J./Wilcox, J. A. (1991): The Measurement and Determinants of Single-Family House Prices. Federal Reserve of Boston Working Paper 91–7.  Google Scholar
  47. Philips, P./Hansen, B. (1990): Statistical Inference in Instrumental Variables Regression with I(1) Processes. Review of Economic Studies, Vol. 57, 99–125.  Google Scholar
  48. Stock, J./Watson, M. (1993): A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems. Econometrica, Vol. 61, 783–820.  Google Scholar

Abstract

The performance of the Irish economy stands out across western economies over the past two decades as the later years of its “Celtic Tiger” phase gave way to a sharp and extremely large economic downturn between 2008 and 2012. This severe recession has been followed by a Lazarus-style economic recovery in recent years. This paper examines the role played by the credit-driven housing net worth channel in the path that Irish economic performance has taken between 2002 and 2019 by specific reference to developments in the domestic labour market. We find a significant positive relationship between housing net worth and employment growth in Ireland, manifesting itself through the non-traded sector of the economy between 2007 and 2012. This followed the emergence and then bursting of a substantial credit-fuelled housing market bubble in the Irish residential property market. Our analysis indicates no evident link between economic activity and a credit-driven housing net worth channel in recent years. This may reflect market and regulatory responses to the banking crisis-led recession of the late 2000s and early 2010s.

Table of Contents

Section Title Page Action Price
David Cronin / Kieran McQuinn: House Prices and the Credit-Driven Household Demand Channel: The Case of the Irish Economy 1
Abstract 1
I. Introduction 1
II. The Irish Housing and Credit Market: A Brief Review 4
III. The Sustainability of Irish House Price Levels Over Time 8
IV. Housing Net Wealth and the Labour Market in Ireland 1
V. Conclusion 1

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