HOUSING MARKETS, CONSUMPTION AND FINANCIAL LIBERALIZATION IN THE MAJOR ECONOMIES

This paper analyses the implications of relaxing credit restrictions in housing finance markets. A theoretical model of the interaction of financial and housing markets and forward looking agents is developed. The effects of financial liberalisation in the model are analysed and evidence from the U.S.A. and U.K. on the impact of easing credit restrictions is presented. Estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the U.K. and U.S.A. Simulations are undertaken to gauge the effect on consumption, saving and bequests of wealth of possible future convergence in national systems of housing finance.