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Monitoring household liquidity constraints across Europe: a panel approach

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  • Eva Schlenker
  • Robert Maderitsch

Abstract

Excessive real estate credit is a major threat to financial stability. However, risk arising from household credit is difficult to monitor at an aggregate level. As household liquidity constraints play a key role, we propose a new indicator for the analysis of mortgage lending restrictions: The average marginal effect of household income on the probability of home ownership. Resorting to data from the European Union Statistics on Income and Living Conditions (EU-SILC), the preceding European Community Household Panel (ECHP) and the German Socio Economic Panel (SOEP), we conduct a comprehensive empirical investigation based on various panels for European countries between 1999 and 2010. We find significant differences in marginal effects across countries as well as across time. Most striking are low and weakening marginal effects during the run-up of the financial crisis of 2007 for countries such as Spain and the United Kingdom - countries severely affected by bursting real estate bubbles since 2008. On the one hand, our results demonstrate the potential usefulness of the new indicator within early warning approaches for real estate and financial crises. On the other hand, they highlight the problem of heterogeneous household liquidity constraints across Europe, particularly with regard to the common monetary policy within Eurozone countries. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Eva Schlenker & Robert Maderitsch, 2015. "Monitoring household liquidity constraints across Europe: a panel approach," International Economics and Economic Policy, Springer, vol. 12(1), pages 75-91, March.
    • Handle: RePEc:kap:iecepo:v:12:y:2015:i:1:p:75-91
    DOI: 10.1007/s10368-014-0276-9
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    References listed on IDEAS

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    1. Bunda, Irina & Ca' Zorzi, Michele, 2010. "Signals from housing and lending booms," Emerging Markets Review, Elsevier, vol. 11(1), pages 1-20, March.
    2. Richard Hauser, 2007. "Probleme des deutschen Beitrags zu EU-SILC aus der Sicht der Wissenschaft: ein Vergleich von EU-SILC, Mikrozensus und SOEP," SOEPpapers on Multidisciplinary Panel Data Research 69, DIW Berlin, The German Socio-Economic Panel (SOEP).
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    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
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    More about this item

    Keywords

    Liquidity constraints; Financial crisis; Panel data; Fixed effects; E50; E60; R20;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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