Bank lending and commercial property cycles: Some cross-country evidence

We investigate determination of commercial property prices and their interaction with aggregate bank lending. An illustrative model suggests that lending is closely related to property prices and property markets can develop cycles given plausible assumptions. Cross-country empirical analysis confirms its predictions. Property prices show particularly strong links to credit in countries that experienced banking crises linked to property losses in 1985-1995. Studies of dynamic interaction suggest that variance in commercial property prices is largely explicable by lagged shocks in the variable itself, while GDP and bank credit also have an important influence. Implications arise for risk managers and regulators. (C) 2010 Elsevier Ltd. All rights reserved.