Prepared by Hossein Samiei.
See B. Drees and C. Pazarbasioglu (1998), The Nordic Banking Crises, Pitfalls in Financial Liberalization?, IMF Occasional Paper 161, April.
According to new government legislation, insurance intermediaries will soon fall under the Bank’s supervision.
For further details of the issues discussed in this section, see “The Central Bank’s Regulatory and Supervisory Role,” mimeo., Central Bank of Ireland; and Annual Report, Central Bank of Ireland, various issues.
Peter Bacon & Associates, An Economic Assessment of Recent House Price Development, A Report Submitted to the Minister for Housing and Urban Renewal, April 1998.
According to the authorities this in part reflects the activities of International Financial Services Center. The downward trend throughout the period could also be a result of higher competition.
Building costs could also affect house prices, but this was not supported by the analysis and the variable was dropped from the analysis. Demographic factors also were not included in the analysis because of data problems.
House prices and housing loans data are from the Housing Statistics Bulletin, various issues, Department of Environment and Local Government; housing completion and building costs are from Bloomberg; and all nominal series are deflated by the consumer price index (CPI) from the Central Office of Statistics (CSO).
The order of the lag structure is determined using the Schwarz Bayesian (SB) Criterion. All the estimations and tests were carried out using Micro/it 4.0 for Windows (M.H. Pesaran and B. Pesaran).
Assuming that all variables are endogenous could give rise to a large number of statistically acceptable estimated cointegrating vectors, some of which would not make sense theoretically. In some applications it is reasonable to assume that some variables are exogenous. This would reduce the number of possible estimated cointegrating vectors and, by enhancing the theoretical structure of the estimated system, mitigate the need to rely solely on the data, or other arbitrary post–estimation procedures, for choosing from among the estimated vectors.
See I. Harboe, S. Johansen, B. Nielsen, and A. Rahbek (1995), “Test for Cointegration Ranks in Partial Systems,” Preprint No. 5, Institute of Mathematical Statistics, University of Copenhagen; and M. H. Pesaran, Y. Shin, and R. J. Smith, “Structural Analysis of Vector Error Correction Models with Exogenous 1(1) Variables,”, mimeo., University of Cambridge February 1997, for a description of how exogenous variables may be introduced in the Johansen procedure. Note that this methodology requires that the first differences of the exogenous variables be included as 1(0) variables in the cointegrating equation.
Increasing the order of the VAR to 3 would remove serial correlation and would leave the conclusions unchanged as far as the two–way relationship between house prices and housing loans are concerned. As noted earlier, however, the SB Criterion prefers a VAR(l) relationship, as reported in the tables.
Productivity, as a measure of firms’ performance, did not appear to have a bearing on equity prices and it was not included in the analysis.
The data are quarterly and cover the period 1983Q1–1997Q4. Equity prices are the Irish stock price index. The nominal interest rate is the three–month rate. Private credit is only available from 1990, and broad money is used as a proxy. Quarterly data for GDP or disposable income are not available. Annual GDP series are converted into quarterly series using the cubic spline method. Global equity prices are represented by US equity prices. Irish and U.S. equity prices are from the International Financial Statistics (IFS). The interest rate, broad money, GDP, and CPI are from the Central Statistics Office (CSO).