INTERLINKAGE BETWEEN PROPERTY PRICE AND CREDIT: EMPIRICAL EVIDENCE FROM INDIA

The paper investigates the two-way character of the link between asset prices (especially housing prices) and credit in India by examining quarterly data for fifteen Indian cities for a period of six years from 2007Q4 to 2013Q4. There may be many channels through which real estate and credit markets interact and causality may go in both directions, asset prices influencing credit through expectations formation and, credit in turn, impacting asset prices. Time series econometric tools of unit ischolar_main, cointegration and causality tests are used to test for existence of long run relation and direction of causality for each city. The contribution of this paper is to provide evidence on causality between credit and housing price with respect to India and discuss the policy implications.