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Does the real estate market behavior predict the trust crisis in the financial sector? The case of the ECB and the Euro

Author

Listed:
  • Maryna Brychko

    (Sumy State University, Ukraine)

  • Tetyana Vasilyeva

    (Sumy State University, Ukraine)

  • Zuzana Rowland

    (Institute of Technology and Business, School of Expertness and Valuation, Czech Republic)

  • Serhiy Lyeonov

    (Sumy State University, Ukraine)

Abstract

Research background: Based on the history of financial crises, real estate market behavior could be thought of as a key benchmark of trust shifts in the financial sector of the economy. Plunging real estate asset prices accompanied by the financial "bubbles" explosion could be viewed as the harbinger — even the cause — of the public trust crash in the financial sector. Purpose of the article: This study intends to assess the extent to which the real estate market behavior determinants, along with financial sector consumers' feelings, are able to predict trust crises in the financial sector, namely to its primary institutions — European Central Bank and the Euro. Methods: In order to estimate the probability of a trust crisis in the financial sector, two logistic regression logit models were developed based on two types of dependent variables as they reflect trust violations in the financial system primary institutions — net trust in European Central Bank (Model I) and net support for the Euro (Model II). The research was conducted on quarterly panel data of the EU countries from the euro area covering the period from 2000 to 2019. Logit regressions employed for data processing and analysis were performed in the computational system STATISTICA. Findings & value added: The logit-modeling results show that determinants of irrational real estate buyers' behavior are powerless in predicting the escalation of the trust crisis in the Euro. However, binary models of real estate market behavior could be successfully used to predict the probability of the trust crisis in the European Central Bank. The results show that real house price indices, price to income ratio, price to rent ratio, and rent prices accompanied by the financial sector consumers' feelings are statistically significant, providing the best distribution between the normal times and periods of trust crisis in the European Central Bank. Irrational real estate market behavior may indicate serious problems in the trust violations in the European Central Bank, and it should be a signal for policymakers to take actions towards more efficient financial and real estate market regulation following the behavioral approach.

Suggested Citation

  • Maryna Brychko & Tetyana Vasilyeva & Zuzana Rowland & Serhiy Lyeonov, 2021. "Does the real estate market behavior predict the trust crisis in the financial sector? The case of the ECB and the Euro," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(4), pages 711-740, December.
    • Handle: RePEc:pes:ierequ:v:16:y:2021:i:4:p:711-740
    DOI: 10.24136/eq.2021.026
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    More about this item

    Keywords

    trust crisis; financial sector; real estate market; behavioral approach; real house price index;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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