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<p>We empirically examine whether income inequality amplifies the effect of household credit shocks on real house prices using a two-stage analysis. In the first stage, we estimate how house prices dynamically respond to household credit shocks in each country using country-specific structural vector autoregression (VAR) models for a sample of 42 advanced and emerging market economies. In the second stage, we conduct a cross-country analysis to investigate the role of income inequality in amplifying the estimated response of household credit shocks on house prices. Our results suggest that higher levels of income inequality increase the sensitivity of house prices to household credit shocks, even after controlling for other factors. This pattern holds even when using wealth inequality, and alternative specifications including dynamic panel VAR and single-equation estimation. Our study has important policy implications. Policies aimed at improving income and wealth distribution may help mitigate housing market fluctuations, a factor that contributed significantly to the Global Financial Crisis.</p>

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Inequality, Household Credit Shocks, and House Price Dynamics

  • 期刊论文

  • 发表日期：

    2025年8月18日

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  • Berrak Bahadir,
  • Kuhelika De

摘要

We empirically examine whether income inequality amplifies the effect of household credit shocks on real house prices using a two-stage analysis. In the first stage, we estimate how house prices dynamically respond to household credit shocks in each country using country-specific structural vector autoregression (VAR) models for a sample of 42 advanced and emerging market economies. In the second stage, we conduct a cross-country analysis to investigate the role of income inequality in amplifying the estimated response of household credit shocks on house prices. Our results suggest that higher levels of income inequality increase the sensitivity of house prices to household credit shocks, even after controlling for other factors. This pattern holds even when using wealth inequality, and alternative specifications including dynamic panel VAR and single-equation estimation. Our study has important policy implications. Policies aimed at improving income and wealth distribution may help mitigate housing market fluctuations, a factor that contributed significantly to the Global Financial Crisis.