DP4797 Bank Lending and Property Prices in Hong Kong

Author(s): Stefan Gerlach, Wensheng Peng
Publication Date: December 2004
Keyword(s): bank lending, Hong Kong, property prices
JEL(s): E32, E42, G21
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4797

This Paper studies the relationship between residential property prices and lending in Hong Kong. This is an interesting topic for three reasons. First, swings in property prices have been extremely large and frequent in Hong Kong. Second, under the currency board regime, monetary policy cannot be used to guard against asset price swings. Third, despite the collapse in property prices since 1998, the banking sector remains sound. While the contemporaneous correlation between lending and property prices is large, our results suggest that the direction of influence goes from property prices to bank credit rather than conversely.