Credit, house prices and the macroeconomy in Cyprus

Abstract

This paper examines whether there is a link between house prices, credit and macroeconomic conditions in Cyprus, using a vector error correction model (VECM) and quarterly data from 2005Q4 to 2016Q4. Overall, the results suggest that a link does exist and that house prices have a bi-directional relationship with loans and unemployment rates. Macroeconomic conditions matter for Cyprus economy as an unexpected shock in unemployment has been found to have a persistent impact on all model variables. Interest rates have also been found to have an effect on wages and house prices.