Disentangling Credit Shocks in the Irish Mortgage Market

This paper estimates the evolving transmission of mortgage credit supply and demand in the Irish economy, using a Bayesian SVAR. À la the method outlined by Primiceri (2005), we use the algorithm of Kim, Shephard and Chib... [ view full abstract ]

This paper estimates the evolving transmission of mortgage credit supply and demand in the Irish economy, using a Bayesian SVAR. À la the method outlined by Primiceri (2005), we use the algorithm of Kim, Shephard and Chib (1998) to estimate a time-varying parameter VAR with stochastic volatility. Structural shocks are identified through sign restrictions on impulse responses, allowing for the separate identification of credit supply and credit demand shocks to the Irish mortgage market. Results suggest that the responses of house prices, mortgage interest rates and disposable income to both shocks have changed on numerous occasions throughout the sample period. In particular, during the 2005-2007 pre-crisis period, and the 2012-2015 housing market recovery period, both credit supply and demand shocks have a greater impact on house prices and mortgage interest rates. Comparing both shocks, demand shocks have a greater effect on house prices, particularly at the end of our sample.