Publication details

Home equity loan as a cause of asymmetric relationship between real estate price and consumption


REICHEL Vlastimil

Year of publication 2018
Type Article in Proceedings
Conference Quantitative Methods in Economics; Multiple Criteria Decision Making XIX
MU Faculty or unit

Faculty of Economics and Administration

Keywords Transmission mechanism; Home equity loan; Cross-correlation analysis
Description The aim of the paper is to point out the cause of the asymmetric relationship between real estate price and consumption. Generally, when prices raise consumption decreases. However, real estate is not only source of housing. It is also a source of wealth and as such can be converted into liquidity at a suitable time by using a home equity loan. Unfortunately, the best time for this convertibility is the moment least suitable for the authorities who are responsible for monetary control. Firstly, I refer to the channel of a transmission mechanism by which central bank can disrupt the economy at the time of boom. Secondly, I introduce and verify a mechanism that may cause the rise of consumption depending on the real estate price increase in boom times. Last but not least, I mention why there could be the relationship between the price of real estate and the consumption problematic when setting monetary policy. The cross-correlation analysis is implemented on data of the Czech Republic which cover the period between 2006Q1 and 2017Q4. The outcome of the work results in the fact that a mechanism which can pump up a large amount of financial resources to the economy at an inappropriate moment can be a reason why the effectiveness of restrictive measures of the monetary authorities in the Czech Republic is slowing down.
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