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Appendix 1. Details of Regression: Growth in Housing Price (Georgetown)

a) Partial Sample (1995–2015)

article image

Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 2 lags

article image
  • Based on the Breusch-Godfrey Serial Correlation LM Test, the null hypothesis (no serial correlation) is accepted at 5 percent significance level.

Series: ACTUAL FITTED

Sampl e: 1995 2018

Included observations: 24

Null hypothesis: Series are not cointegrated

Cointegrating equation deterministics: C

Automatic lags specification based on Schwarz criterion (maxlag=4)

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*MacKinnon (1996) p-values.
  • Based on the Engel-Granger test of cointegration, the null hypothesis (actual housing prices growth and the predictor are not cointegrated) is rejected, at 5 percent significance level.

b) Full Sample (1995–2018)

article image

Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 2 lags

article image
  • Based on the Breusch-Godfrey Serial Correlation LM Test, the null hypothesis (no serial correlation) is accepted at 5 percent significance level.

Engel-Granger Cointegration Test

Series: ACTUAL FITTED

Sample: 1995 2018

Included observations: 24

Null hypothesis: Series are not cointegrated

Cointegrating equation deterministics: C

Automatic lags specification based on Schwarz criterion (maxlag=4)

article image
*MacKinnon (1996) p-values.
  • Based on the Engel-Granger test of cointegration, the null hypothesis (actual housing prices growth and the predictor are not cointegrated) is rejected, at 5 percent significance level.

c) Hypothesis Test: Are Observed Growths in Housing Prices Significantly Different from the Predictor in 2016, 2017, and 2019?

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Hypothesis:

H0: (A)-(B) = 0

H1: (A)-(B) ≠ 0

Mean=-0.10; Standard deviation=2.3308; N=24

For 2016:

  • Test statistic, Zi = 0.13

  • Critical value, tcrit,i = 1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zi < tcrit,i. Therefore, the observed growth in housing prices is not significantly different from the predictor in 2016.

For 2017:

  • Test statistic, Zi = -0.52

  • Critical value, tcrit,i = -1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zi > tcrit,j. Therefore, the observed growth in housing prices is not significantly different from the predictor in 2017.

For 2018:

  • Test statistic, Zk = -0.49

  • Critical value, tcrit,k = -1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zk > tcrit,k. Therefore, the observed growth in housing prices is not significantly different from the predictor in 2018.

Appendix 2. Details of Regression: Growth in Housing Loans

(a) Partial Sample (1995–2015)

article image

Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 2 lags

article image
  • Based on the Breusch-Godfrey Serial Correlation LM Test, the null hypothesis (no serial correlation) is accepted at 5 percent significance level.

Engel-Granger Cointegration Test

Series: ACTUAL FITTED

Sample: 1995 2015

Included observations: 21

Null hypothesis: Series are not cointegrated

Cointegrating equation deterministics: C

Automatic lags specification based on Schwarz criterion (maxlag=4)

article image
  • Based on the Engel-Granger test of cointegration, the null hypothesis (actual housing loans growth and the predictor are not cointegrated) is rejected, at 5 percent significance level.

(b) Full Sample (1995–2018)

article image

Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 2 lags

article image
  • Based on the Breusch-Godfrey Serial Correlation LM Test, the null hypothesis (no serial correlation) is accepted at 5 percent significance level.

Engel-Granger Cointegration Test

Series: ACTUAL FITTED

Sample: 1995 2018

Included observations: 24

Null hypothesis: Series are not cointegrated

Cointegrating equation deterministics: C

Automatic lags specification based on Schwarz criterion (maxlag=4)

article image
  • Based on the Engel-Granger test of cointegration, the null hypothesis (actual housing loans growth and the predictor are not cointegrated) is rejected, at 5 percent significance level.

(c) Hypothesis Test: Are Observed Growths in Commercial Banks’ Housing loans Significantly Different from the Predictor in 2016, 2017, and 2019?

article image

Hypothesis:

H0: (A)-(B) = 0

H1: (A)-(B) ≠ 0

Mean=-0.02; Standard deviation=18.1578; N=24

For 2016:

  • Test statistic, Zi = -0.209

  • Critical value, tcrit,i =-1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zi > tent,,. Therefore, the observed growth in housing loans is not significantly different from the predictor in 2016.

For 2017:

  • Test statistic, Zj = -0.199

  • Critical value, tcrit,j = -1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zi > tcrit,j. Therefore, the observed growth in housing loans is not significantly different from the predictor in 2017.

For 2018:

  • Test statistic, Zk = -0.385

Critical value, tcrit,k = -1.711, based on t-distribution with 5 percent significance level and n=24

Results: Accept H0 since Zk > tcrit,k. Therefore, the observed growth in housing loan is not significantly different from the predictor in 2018.

1

The author would like to thank the Ms. Otker and Mr. McIntyre for a rich blend of ideas, comments and candid advice; all of which have benefitted this paper substantially.

2

Based on Engel-Granger test for cointegration Breusch-Godfrey serial correlation LM Test (Appendix 1).

3

The pace of growth (or rate of change) is computed as the second order derivative of the annual growth of housing prices.

4

In addition to commercial banks, nonbank financial institutions—such as the New Building Society, the Hand-in-Hand Trust Corporation, and credit unions—extend mortgage loans. Commercial banks account for about 70 percent of financial system total assets and originate two thirds of total real estate mortgage loans.

5

The BoG is in the process of implementing a hybrid approach to the Basel framework where capital definition and operational risk are based on Basel III while market risk and the standard approach to assessing credit risk are based on Basel II.

6

For further details, refer to IMF, 2014a and IMF, 2014b

7

Research shows these indicators together can predict a crisis as early as two to four years in advance (IMF, 2011a).

8

See the BCBS consultative document (http://www.bis.org/bcbs/publ/d307.pdf) proposing a range of risk weights (from 25 to 100 percent) driven by LTV and DSTI ratios.

9

At present, commercial banks in Guyana do not lend in foreign currencies. If such lending is extended in the future, differentiated capital charges on FX-denominated loans should be considered, particularly when they lead to large currency mismatches and open FX position.