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Bank Lending Effect on German Commercial Property Prices

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  • Gabriel S. Lee
  • Johannes Gruber
  • Klaus Edenhoffer

Abstract

This paper analyzes the effects of bank lending on German commercial property prices. The theory on the role of financial intermediaries in business cycle activity (with variations on this theme referred to as models of the credit channel, agency cost models, or financial accelerator models) states that lending activity is characterized by asymmetric information between borrowers and lenders. As a consequence, interest rates may not move to clear lending markets (as in models with moral hazard and adverse selection elements) or .rms.net worth may play a critical role as collateral in in.uencing lending activity (as in models with agency costs). While the theory is concrete, the debate on the empirical support for these models continues. In this paper, our goal is to continue in exploring this debate by estimating a structural VAR model using German commercial property data from 1975 to 2003. Unlike other previous empirical results in this literature, our results show a strong negative correlation between growth in property prices and growth in credit. Moreover, the regional German commercial property sector is affected by its own idiosyncratic factor rather than aggregate macroeconomic variables.

Suggested Citation

  • Gabriel S. Lee & Johannes Gruber & Klaus Edenhoffer, 2005. "Bank Lending Effect on German Commercial Property Prices," ERES eres2005_236, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2005_236
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2005-236
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    References listed on IDEAS

    as
    1. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    2. Davis, E. Philip & Zhu, Haibin, 2011. "Bank lending and commercial property cycles: Some cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 1-21, February.
    3. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
    4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    5. Boris Hofmann, 2003. "Bank Lending and Property Prices: Some International Evidence," Working Papers 222003, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Michael Berlemann & Julia Freese, 2013. "Monetary policy and real estate prices: a disaggregated analysis for Switzerland," International Economics and Economic Policy, Springer, vol. 10(4), pages 469-490, December.
    2. Bienert, Sven & Sebastian, Steffen P. & Just, Tobias, . "Niedrigzinsumfeld und die Auswirkungen auf die Immobilienwirtschaft," Beiträge zur Immobilienwirtschaft, University of Regensburg, Department of Economics, number 8, August.

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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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