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House prices, bank instability, and economic growth: Evidence from the threshold model

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  • Pan, Huiran
  • Wang, Chun

Abstract

This paper examines the effects of house prices on bank instability when gauged at various levels of income growth. Bank stability may respond differently to house price changes or deviations from fundamental values in an economic boom environment than in a bust circumstance. A threshold estimation technique developed by Hansen (1999) is applied to a panel of 286 U.S. Metropolitan Statistical Areas (MSAs) over the period 1990Q1–2010Q4. We consider two house price indicators: the house price changes and the house price deviations from long-run equilibrium. The results suggest the existence of income growth threshold effects in the relationship between house prices and bank instability. Specifically, there are two income growth thresholds when using the house price changes and one income growth threshold when the house price deviations are applied. Robustness results using the non-MSAs sample from 1995Q1 to 2010Q4 provide further evidence of income growth threshold effects.

Suggested Citation

  • Pan, Huiran & Wang, Chun, 2013. "House prices, bank instability, and economic growth: Evidence from the threshold model," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1720-1732.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:5:p:1720-1732
    DOI: 10.1016/j.jbankfin.2013.01.018
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    More about this item

    Keywords

    House price; Bank instability; Economic growth; Threshold estimation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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