Price and income elasticity of Australian retail finance: An autoregressive distributed lag (ARDL) approach

Transcription

1 ISSN Price and income easiciy of Ausraian reai finance: An auoregressive disribued ag (ARDL) approach Heen Higgs and Andrew C. Worhingon No Series Edior: Dr. Aexandr Akimov Copyrigh 2011 by auhor(s). No par of his paper may be reproduced in any form, or sored in a rerieva sysem, 1 wihou prior permission of he auhor(s).

2 Absrac Price and income easiciy of Ausraian reai finance: An auoregressive disribued ag (ARDL) approach Heen Higgs & Andrew C. Worhingon * Deparmen of Accouning, Finance and Economics, Griffih Universiy, Brisbane, Ausraia This paper modes he price and income easiciy of reai finance in Ausraia using aggregae quarery daa and an auoregressive disribued ag (ARDL) approach. We paricuary focus on he impac of he goba financia crisis (GFC) from 2007 onwards on reai finance demand and anayse four submarkes (period anaysed in brackes): owner-occupied housing oans (Sep-85 June-10), erm oans (for moor vehices, househods goods and deb consoidaion, ec.) (Dec-88 Jun-2010), credi card oans (Mar-90 Jun-10), and margin oans (Sep-00 Jun-10). Oher han he indicaor ending raes and annua fu-ime earnings respecivey used as proxies for he price and income effecs, we specify a arge number of oher variabes as demand facors, paricuary refecing he vaue of he asse for which reai finance demand is derived. These variousy incude he yied on indexed bonds as a proxy for infaion expecaions, median housing prices, consumer senimen indexes as measures of consumer confidence, moor vehice and reai rade saes, housing deb-o-housing asses as a measure of everage, he proporion of proeced margin ending, he avaiabe credi imi on credi cards, and he A Ordinaries Index. In he ong run, we find significan price easiciies ony for erm oans and margin oans, and significan income easiciies of demand for housing oans, erm oans and margin oans. We aso find ha he GFC has ony significany impaced upon he ong-run demand for erm oans and margin oans. In he shor run, we find ha he GFC has had a significan effec on he price easiciy of demand for erm oans and margin oans, wih ony credi card oans exhibiing a significan price easiciy of demand oherwise. Expeced infaion is aso a key facor affecing reai finance demand. Overa, mos of he submarkes in he anaysis indicae ha reai finance demand is price ineasic bu more income easic han convenionay hough. JEL codes C22, D14, G01 Keywords Reai finance demand, housing oans, erm oans, credi card oans, margin oans * Deparmen of Accouning, Finance and Economics, Griffih Universiy, Nahan QLD 4111, Ausraia. Te. +61 (0) Emai: a.worhingon@griffih.edu.au 1

3 1. Inroducion Reai finance, aso known as consumer credi or househod credi, is where he paymen for goods or services purchased by individuas or househods direcy as consumers is no a he momen of purchase, raher akes he form of repaymens over a period under some prearranged paymen pan. This genera definiion herefore encompasses financing aciviies as diverse as non-revoving credi oans for he purchase of new and exising houses and and, moor vehices, deb consoidaion, househod appiances, furnishings and oher durabe goods and hoidays and revoving credi oans again for he purchase of durabe goods, bu aso nondurabe goods and services of a ypes, deb refinancing and margin ending. In Ausraia, as esewhere, reai finance hus represens a significan amoun of he financia resources avaiabe in he economy and hereby an imporan deerminan of househod economic and socia wefare. For exampe, in , secured finance commimens o individuas oaed $180 biion for he purchase of new and exising dweings and $5 biion for aernaions. A he same ime, persona finance commimens amouned o $371 biion for he purchase of new and used moor vehices, $25 biion for househod and oher persona goods and services, $17 biion for deb consoidaion, aong wih revoving credi faciiies of $3,462 biion. Ceary, a sound undersanding of he demand for reai finance is hen of imporance for a severa paries for a number of reasons. These incude, among ohers, he macro impac of consumer credi on he ineres rae ransmission channe of moneary poicy for cenra bankers, on micro uses by reguaors for assessing financia sabiiy, and for indusry users seeking o undersand he evouion of credi markes and he impac of credi demand on purchasing behaviour. One paricuar focus here is he price and income easiciies of demand and how changes in prices and incomes, among oher hings, affec he demand for he differen componens of reai finance. The needs of hose ineresed in beer undersanding he condiions of reai finance demand aso change over ime, ofen rapidy. For insance, for mos of he 1990s and 2000s, househod deb in Ausraia (as in mos deveoped economies) grew significany, driven by surging housing prices, buoyan sock markes, and brisk innovaion in consumer goods markes. Because of he Goba Financia Crisis (GFC), hese same economies are now experiencing sowing credi demand if no rapid deeveraging, wih househods increasingy reining in consumpion and saving more han ever. For exampe, during he mos recen quarer, in seasonay adjused erms he oa vaue of owner-occupied housing commimens excuding aeraions and addiions in Ausraia fe 4.6%, whie persona revoving credi commimens fe by 14.5% and fixed ending commimens by 4.5%. This has imporan impicaions for fuure economic recovery. 2

4 Unforunaey, despie he paen need for a sound undersanding of reai finance demand, here is no known academic sudy in Ausraia ha examines hese imporan issues. Esewhere, an emerging ieraure empoying boh macro and microanayses is in evidence. Accordingy, he purpose of his paper is o esimae demand equaions for reai finance. The main noveies of our work are wofod. Firs, we use aggregae daa over a reaivey ong period in conjuncion wih advanced ime-series echniques. We paricuary focus on he price and income easiciies of demand and he impac of he GFC on he dynamics of reai finance markes. Second, whie some ending submarkes have been inensivey examined overseas (bu no in Ausraia), such as home oans, far fewer sudies concern he demand for non-revoving credi iems ike erm oans, and even fewer forms of revoving credi ike credi cards and margin oans. In response, we esimae separae demand funcions for owner-occupied housing oans, erm oans, credi card oans and margin oans. The remainder of he paper comprises five secions. Secion 2 discusses he esimaion approach and Secion 3 presens he variabe specificaion. Secion 4 deais he modes esimaed and Secion 5 provides he resus. The paper ends wih some concuding remarks in Secion Esimaion approach The mehod we empoy o esimae he price and income easiciy of reai finance in Ausraia is o specify he demand (as measured by consumpion) of four ypes of reai finance as regressands and indicaor raes, househod income and oher facors as regressors using he bounds es and auoregressive disribued ag (ARDL) coinegraion procedure deveoped by Pesaran e a. (2001). Recen empirica appicaions in a variey of conexs incude De Via and Abbo (2004), Narayan (2005), Narayan and Smyh (2005), Fosu and Magnus (2006), Tang (2007), Pahavani and Rahimi (2009) and Sakyi (2011). This echnique has hree main advanages over earier coinegraion echniques when appied o he aggregae daa in our sudy. Firs, i is reaivey simpe compared wih he Johansen and Juseius (1990) muivariae coinegraion echnique as ARDL permis he coinegraion reaionship o be esimaed using ordinary eas squares (OLS) once we idenify he ag order of he mode. Second, he chosen approach is appicabe irrespecive of wheher he regressors are purey saionary wihou any rend and hus inegraed of order zero or I(0)] or wih a uni roo (a random wak) and herefore inegraed of order one or I(1)] or muuay coinegraed. Neverheess, i wi produce spurious resus for I(2) or higher series so differencing is si required o reduce hese o I(1). Finay, he echnique is more efficien for he sma sampe size found wih our daa, a siuaion where boh he Enge and Granger (1987) and Johansen (1988; 1991) coinegraion mehods are considered unreiabe. 3

5 The ARDL incuding bounds es comprises hree seps. The firs sep is o esimae a sandard og-og specificaion of he coinegraing ong-run reaionship for an I(1) dependen variabe as a funcion of a vecor of I(d) regressors of order 0 < d < Variabe specificaion Four separae reai finance demand equaions are esimaed. Tabe 1 provides deais of he dependen and independen variabes in each equaion, incuding he sources of he daa, he number of quarery observaions and seeced descripive saisics. The firs reai finance submarke examined is owner-occupied housing oans (HSE). In erms of independen variabes, we measure he price of housing oans (HPR) wih he sandard variabe bank morgage rae whie annua fu-ime earnings (INC) measure income. We expec he signs on he esimaed coefficiens for hese regressors o foow hose expeced for a norma good wih a downward soping (ineasic) demand curve (because of imied subsiuion opporuniies) and demand increasing posiivey, bu ess han proporionaey, wih income (neiher an inferior nor superior good). In addiion, we incude he yied on indexed bonds (INB) as a proxy for expeced infaion. A oher hings being equa, higher expeced infaion brings forward purchases of he underying asse and wih i finance consumed based on his asse. A posiive coefficien is hypohesised. 4

6 Tabe 1 Variabe descripions and seeced descripive saisics Finance Housing oans (owneroccupied) Term oans (moor vehices, househod goods, deb consoidaion, oher) Credi cards Margin oans Varia be Descripion Source Sar End Obs. Min. Max. Mean Sd. dev. CV HSE Housing finance commimens for owner-occupaion ($m) ABS Sep-85 Jun HPR Indicaor rae, Sandard variabe bank morgage rae (%) RBA Sep-85 Jun DTA Housing deb-o-housing asses (everage) (%) RBA Sep-85 Jun RTD Housing ineres paymens-o-disposabe income (deb servicing) (%) RBA Sep-85 Jun INB Yied on indexed bonds (%) RBA Sep-85 Jun MHP Median housing price ($) ABS Sep-85 Jun INC Annua fu-ime earnings ($) ABS Sep-85 Jun TLN Lending commimens fixed erm credi ($m) ABS Dec- Jun TPR Indicaor rae fixed erm oans, (%) RBA Dec- Jun RET Reai rade ($m) 88 ABS Dec- Jun MVS Moor vehice saes (000s) 88 ABS Dec- Jun CMS Wespac-Mebourne Insiue consumer senimen index (n) 88 MI Dec- Jun INB Yied on indexed bonds (%) 88 RBA Dec- Jun INC Annua fu-ime earnings ($) 88 ABS Dec- Jun CCS Credi used a end of quarer ($m) 88 ABS Mar- Jun CCP Indicaor rae sandard credi cards (%) RBA Mar- Jun CPR Credi imi a end of quarer ($m) 90 ABS Mar- Jun RET Reai rade ($m) 90 ABS Mar- Jun CMS Wespac-Mebourne Insiue consumer senimen index (n) 90 MI Mar- Jun INB Yied on indexed bonds (%) 90 RBA Mar- Jun INC Annua fu-ime earnings ($) 90 ABS Mar- Jun MLN Margin ending ($m) 90 RBA Sep-00 Jun MPR Indicaor rae margin oans (%) RBA Sep-00 Jun PRP Proporion of proeced margin ending (p) RBA Sep-00 Jun PLA Proporion of ending-o-aggregae credi imi (p) RBA Sep-00 Jun PAS Proporion of aggregae credi imi-o-vaue of underying securiy RBA Sep-00 Jun ASX ASX ( ) A Ordinaries Index (%) ASX Sep-00 Jun INB Yied on indexed bonds (%) RBA Sep-00 Jun INC Annua fu-ime earnings ($) ABS Sep-00 Jun

7 We make idenica assumpions for each of he remaining hree dimensions of reai finance considered in his anaysis (erms, credi card and margin oans), such ha he expeced esimaed price easiciy and income easiciy wi be negaive and posiive, respecivey, and he esimaed coefficien on expeced infaion is posiive. Moreover, we expec he price easiciy of demand o be ineasic (he quaniy demanded changes ess han proporionaey given a change in prices) so ha he esimaed coefficien wi be ess han (negaive) one. In comparison, income easiciy shoud ie in he range zero o one indicaing a ess han proporionae change in borrowing wih a change in income (woud be negaive for an inferior good and more han one for a superior good). For housing oans, we incude severa addiiona demand facors specificay reaed o hr overa housing marke and housing finance condiions. These are deb-o-housing asses (DTA) as an indicaor of everage (and financia fexibiiy), for which we expec a posiive coefficien, and housing ineres paymens-odisposabe income (RTD) as a measure of deb servicing requiremens, for which we expec a negaive coefficien associaed wih increasing morgage sress. We aso incude he median housing price (MHP) o refec he price eve of he underying asse, for which we expec a posiive coefficien. As a of he above daa has been coeced over he onges period, we are abe o obain 100 quarery observaions for each variabe, beginning in Sepember 1985 and ending in June The second submarke of reai finance demand is erm oans, comprising oans for moor vehices, househod goods, deb consoidaion, ec. We measure he quaniy demanded wih he amoun of fixed erm ending commimens (TLN) and again specify he price wih an indicaor ending rae, bu his ime for fixed erm oans (TPR), income wih fu-ime earnings (INC) and he impac of expeced infaion wih he yied on indexed bonds (INB). As discussed we expec simiar signs as above for he esimaed coefficiens for price ( ), income (+) and expeced infaion ( ). However, as he demand for erm oans mos cosey aigns wih condiions in reai goods markes for which he demand for finance is a derived demand, we aso incude he voume of reai rade (RET) and moor vehice saes (MVS), aong wih he Wespac Mebourne Insiue consumer senimen index (CMS) as an indicaor of consumer confidence. We expec posiive coefficiens when we specify hese addiiona demand facors as regressors. Unforunaey, daa is avaiabe on some of hese variabes for ony a shorer period han housing oans so we are ony abe o obain 87 quarery observaions, again ending in June 2010 bu commencing somewha aer in December The hird submarke of reai finance demand is credi card ending, wih he quaniy demanded proxied by he amoun of credi used a he end of each quarer (CCS), he price wih he indicaor rae for sandard credi cards (CCP), income wih annua fu-ime earning (INC) and expeced infaion wih he yied on indexed bonds (INB). The expeced signs on he esimaed coefficiens are again as above. In addiion, we incude he credi imi a he end of he quarer (CPR) o represen he heoreica borrowing imi. A oher hings being equa, he amoun borrowed shoud increase aongside he faciiy for borrowing. As wih erms oans, we incude he vaue of reai rade (RET) and he consumer senimen index (CMS) o proxy for he 6

8 impac of reai saes and consumer confidence on credi card-reaed purchases. We again expec he as wo variabes o dispay posiive coefficiens when hey serve as regressors for credi card oans. The maximum daa period avaiabe here is sighy shorer han for erms oans, so we obain 82 quarery observaions, saring in March 1990 and ending in June The fina submarke of reai finance demand is margin oans, defined as he aggregae vaue of ousanding oans backed by approved securiies (usuay Ausraian equiies and managed funds). The daa are from a survey of banks and brokerage firms offering margin-ending faciiies, wih marke coverage of a eas 95 percen. Margin oans are he mos common way ha Ausraian househods borrow o inves in equiies. They ypicay invove he borrower odging cash, shares or managed funds wih he ender, which hen provides a ine of credi he margin oan o purchase addiiona shares and managed funds, which hen aso become securiy for he oan. The coecion of mos of he variabes defined here has been ony over for a reaivey shor period, so we are abe o specify jus 40 quarery observaions, saring in Sepember 2000 and ending in June The dependen variabe is he amoun of margin ending (MLN) wih he yied on indexed bonds (INB) and annua fu-ime earnings (INC) again proxying for he effec of expeced infaion and income. We use he indicaor rae on margin oans (MPR) o represen he price of margin oans. We incude an addiiona four facors of demand specific o margin oans. The firs of hese is he proporion of proeced margin ending (PRP). This refers o margin oans packaged wih a derivaive produc ha guaranees ha he capia vaue of he underying porfoio does no fa. Lenders ypicay charge a higher rae of ineres for providing a capia proecion faciiy. We expec a posiive coefficien when margin ending is regressed agains he proporion of proeced margin ending refecing ha borrowers face ess risk when using hese faciiies and are herefore more ikey o draw down margin oans. The second addiiona demand facor for margin ending is he proporion of ending-o-aggregae credi imi (PLA). The aggregae credi imi is he sum of he approved oan imis of enders, and herefore represens he oa amoun enders are wiing o end under margin oans. Nauray, we expec he amoun of margin ending o increase aongside he aggregae credi imi. We again hypohesise a posiive coefficien. The hird addiiona demand facor for margin oans is he proporion of he aggregae credi imi-o-vaue of underying securiy (PAS). The vaue of he underying securiy is he marke vaue of a securiies backing he margin ending a he end of he quarer, so we expec margin ending in aggregae wi increase wih he vaue of he underying securiy. The fina addiiona demand facor for margin oans is he ASX A Ordinaries Index (ASX). This is a proxy for marke condiions reaing o he curren and expeced vaue of he underying securiy so we again expec a posiive coefficien. The fina variabe addresses he key focus in his sudy of he GFC and is impac on he price and income easiciy of reai finance demand. In brief, from a reai perspecive, he period eading up o he GFC is characerised by increasing househod deb burden and over-everaging, he growh of reai financia fexibiiy, innovaion, and compexiy, he apparen mispricing of reai finance risk and burgeoning eves 7

9 of househod weah associaed wih srong financia and housing markes. In conras, he period during and afer he GFC is exempified by deerioraing condiions in housing markes and housing finance, decines in overa economic aciviy and cerainy, faing consumer weah, and a marked deerioraion in consumer confidence. To refec hese changes we define a dummy variabe for he GFC and pos-gfc environmen ha akes a vaue of one for a quarers from March 2008 o June 2010, oherwise zero. We empoy his dummy variabe as boh a consan and as an ineracion variabe wih he price and income easiciies of demand for each of he reai finance submarkes. 4. Mode specificaion For each reai finance submarke, we specify he foowing equaion: (1) ny = α + α ny + α + 0 m+ 4 m p 1 i= 1 j= 1 ij 1 ny 1 α n X + α GFC n Price + α GFC n Income α m+ 5 i j GFC n Price + α + α m+ 7 GFC + ε 3 m+ 6 where Y is oans in each of he reai finance submarkes (HSE, TLN CCS and MLN), α 0 is drif, α 1 is an auoregressive parameer, α 2, α 3, α i are ong-run muipiers for he expanaory variabes, Price is respecivey HPR, TPR, CPR and MPR, Income is INB, X i-i is i = 4, 3,.m+3 where m is he number of expanaory variabes, are firs-differenced erms o ensure he residuas, ε, are whie noise idenicay and independeny disribued (i.i.d), α m+i i = 4, 5,6 and α ij are firs-differenced parameers where p is he number of ags, α m+7 is he esimaed coefficien for he dummy variabe, GFC, and a oher variabes are as previousy defined. Equaion (1) is esimaed by OLS in order o es for he exisence of a ong-run reaionship among he agged eves of he expanaory variabes by conducing a join F-es o deermine he significance of he coefficiens of hese sope variabes. The nu hypohesis of no coinegraion among he variabes in Equaion (1) is esed using H 0 : α 1 = α 2 = α 3 = α 4. = α m+1 = 0 agains he aernaive H 1 : α 1 α 2 α 3 α 4. α m+1 0. Two ses of criica vaues repored in Pesaran e a. (2001) provide criica vaues bounds of he es for coinegraion, when he expanaory variabes are assumed I(d) where 0 < d < 1. The ower criica vaue of he bounds es assumes he regressors are I(0) and he upper vaue assumes he regressors are I(1). If he F- saisic is above he criica upper imi, hen he nu hypohesis of no coinegraing ong-run reaionship can be rejeced, irrespecive of he orders of inegraion of he individua ime series. Conversey, if he F- saisic is beow he ower criica vaue, hen he nu hypohesis of no coinegraing ong-run reaionship canno be rejeced. If he F-saisic fas beween hese criica vaues, he es is inconcusive. m+ 3 i= 4 GFC n Income α n X i i 1 8

10 In he second sep, once coinegraion has been esabished he condiiona ARDL (1, p ags for each expanaory variabe) ong-run mode for he og of Y is esimaed in Equaion (2) as: n Y β 0 + β1 ny + β GFC n Price + β GFC n Income + β n X + β GFC + ε (2) = ij i j 4 i= 1 j= 0 m p This invoves seecing he orders of he ARDL (1, p ags for each expanaory variabe) mode using he Akaike informaion crieria (AIC). The hird and fina sep invoves he esimaion of he shor-run dynamic parameers using he error correcion mode (ECM) associaed wih he ong-run esimaes. The ECM is defined in Equaion (3) as foows: ny = γ m q 0 + γ 1 ny 1 + γ 2GFC n Price + γ 3GFC n Income + γ ij n i= 1 j= 1 + γ ECR ε X i j (3) where γ ij i = 1, 2, 3,. m, j = 1, 2. q are he shor-run dynamic coefficiens of he convergence of he mode o equiibrium and ECR is he speed of adjusmen. Noe ha as GFC is by naure ong run (fixed from March 2008 o June 2010) we do no incude i as a consan in he ECM, hough we reain is shor-run ineracions wih he price and income variabes. 5. Empirica resus The ARDL bounds es for coinegraion used in his sudy does no depend on pre-esing he order of inegraion. Noneheess, a uni roo es is conduced on a variabes as he procedure does require ha a variabes are eiher I(0) or I(1). We empoy a reaivey more efficien auoregressive univariae Dickey Fuer generaised eas squares (DF-GLS) uni roo es (Eio e a. 1996). This is a modificaion of he augmened Dickey Fuer (ADF) uni roo -es wih he appicaion of generaised eas squares (GLS) which de-rends he series before appying he ADF es. In genera, he DF-GLS es ouperforms he ADF es in reaion o sampe size and power. The DF-GLS es incudes a consan and rend for he og eve series and a consan wih no rend for he difference of he og eve series. In Tabe 2, we presen he DF- GLS uni roo ess and he criica vaues for each se of variabes in he four demand equaions. Noe ha even hough some variabes are he same across a (INB and INC) or some (RET and CMS) of he four demand equaions, he criica vaues for he uni roo ess wi vary according o he number of observaions avaiabe. For he mos par, whie some series are saionary in eves or I(0), neary a variabes are saionary in firs-differences or I(1). This indicaes ha he daa is suiabe for appying he ARDL procedure. 9

11 Tabe 2 Opima ag and uni roo es resus Housing oans (HSE) Term oans (TLN) Credi cards (CCS) Margin oans (MLN) Leves series (n) Differenced series ( n) Degree of inegrai on Variabe Opima Opima Saisic Variabe AIC ag AIC ag Saisic I(d) nhse nhse I(0) nhpr nhpr I(1) ndta ndta I(1) nrtd nrtd I(1) ninb ninb I(1) nmhp nmh I(1) ninc ninc I(1) Criica vaues 1% eve % eve % eve % eve % % ntln ntln I(1) ntpr ntpr I(1) nret nret I(1) nmvs nmv I(1) ncms ncms I(1) ninb ninb I(1) ninc ninc I(1) Criica vaues 1% eve % eve % eve % eve % % nccs nccs I(1) ncpr ncpr I(1) nccp nccp I(1) nret nret I(1) ncms ncms I(0) ninb ninb I(0) ninc ninc I(1) Criica vaues 1% eve % eve % eve % eve % % nmln nml I(1) nmpr nmpr I(1) nprp nprp I(1) npla npla I(1) npas npas I(1) nasx nasx I(1) ninb ninb 0 I(1) ninc ninc I(1) Criica vaues 1% eve % eve % eve % eve % % In order o conduc he bounds es for coinegraion, he firs sep aken in he ARDL procedure is o es for he og-run reaionship in Equaion (1). We empoy a maximum ag order of one given he reaivey arge

12 number of expanaory variabes and he shor sampe period. Equaion (1) is esimaed using OLS regression. The join F-es is conduced on he agged og-eve variabes whie he differenced variabes have no direc infuence on he bounds coinegraion es (Pesaran and Pesaran, 1997). The F-saisic ess he join nu hypohesis ha he coefficiens of he agged og-eves are equa o zero which impies ha no coinegraing ong-run reaionship exiss. The cacuaed F-saisic for housing oans (HSE) is 1.86 which is ower han he simuaed upper bound criica vaue for k = 9 and n = 78 wih unresriced inercep and rend a he.07 eve of significance. As his fas in he inconcusive region, we are unabe o rejec he nu hypohesis of no coinegraion, indicaing ha a ong-run coinegraing reaionship may no exis beween he dependen and expanaory variabes in his mode. Wih erms oans, credi card oans and margin oans, he respecive cacuaed F-saisics of 2.47, 3.68 and 3.75 are higher han he upper bound criica vaues for k = 9, 9 and 10 and k = 65, 60 and 16, respecivey, wih unresriced inerceps and rends a he.02,.01 and.01 eves of significance. Accordingy, in hese cases, we concude he presence of a ong-run coinegraing reaionship. Tha is, he variabes end o move ogeher, or a eas no oo far apar, over ime. The second sep of he ARDL procedure is o esimae he ong-run mode for he ogs of HSE, TLN, CCS, and MLN in ine wih Equaion (2). This equaion is esimaed using he ARDL (1, 0, 0, 0) specificaion according o he AIC crierion of opima ag seecion. We specified various ags in he modes wih he aim of opimising he overa goodness-of-fi of each mode. Tabe 2 presens he resus wih he ong-run esimaed coefficiens, sandard errors and p-vaues in coumns 2 4 for HSE in he firs pane, TLN in he second pane, CCS in he hird pane and MLN in he fourh pane. Consider he resus for HSE. Oher han agged HSE (which indicaes a 69.4% probabiiy of a one-quarer increase in housing oans being foowed by anoher) hree expanaory variabes exer a significan (10% or ower) effec on housing oans in he ong run: namey, INB, MPH and INC. In erms of he main focus of he anaysis, he price of housing oans (HPR) is no a significan demand facor in he ong run, whereas he income easiciy (INC) of 1.46 is significan and posiive in ine wih expecaions, suggesing housing is no sricy a norma good (demand changes more han proporionaey wih income). Infaion expecaions (INB) are significan and consisen wih our expeced sign, such ha a 1% increase in expeced infaion (INB) eading o a 0.27 percen decrease in HSE (reduced demand for housing oans). The coefficien for median housing prices (MHP) is aso significan, bu does no dispay he expeced posiive sign. The esimaed coefficien here indicaes ha a 1 percen increase in median housing prices (MHP) reduces he demand for housing oans by 0.44 percen. Ineresingy, neiher he consan nor he ineracions erms for GFC are significan, hereby indicaing ha he GFC has had no significan effec on ong-run housing oan demand a he aggregae eve. Overa, he mode is highy significan, wih an R2 of 0.99 and he F-saisics of rejecing he nu hypohesis of he join insignificance of he sope coefficiens a he.01 eve. 11

13 Now consider he demand for erm oans shown in he second pane of Tabe 3. As shown, four facors (oher han agged erms oans indicaing a probabiiy of 72.2% of a one-quarer increase in erms oans being foowed by anoher) are significan in he ong-run: TPR (he price of erms oans), INB (infaion expecaions), GFC x INC (he ineracion of he GFC wih income) and GFC (as a consan). The esimaed coefficien for TPR as he price of erms oans is significan and negaive indicaing ha erms oans are indeed price ineasic (he quaniy demanded changes ess han proporionaey wih a change in price). We can aso see ha a 1% increase in expeced infaion is associaed wih a decrease in he erms oans of.10 percen. As for he impac of he GFC, here is srong evidence of an overa decrease in demand for erm oans because of he GFC ( , p-vaue = 0.021). There is aso he suggesion ha income, which is no ypicay a significan facor, has become significan wih he ineracion erm, such ha during and afer he GFC erm oans have become a superior good (demand increasing more han proporionaey wih income). Once again, he mode is highy significan and accouns for percen of he variaion in erms oans over he sampe period. The esimaed resus for credis card oans are in he second pane of Tabe 3. Ony a singe demand facor oher han agged credi card oans is significan in he ong run, namey, he credi imi a he end of he previous quarer (CCP). The vaue of indicaes ha a 1 % increase in he credi card imi is associaed wih a 0.17 percen decreased in credi usage. The overa mode is again srongy joiny significan and expains 99.9 percen of he variaion in credi card use, whie here is no a saisicay significan price or income effec wih credi card usage a he aggregae eve, nor any impac of he GFC, in he ong run. 12

14 Tabe 3 Esimaed ong- and shor-run modes Long run Shor run Variabe Coef. Sd. err. p-vaue Variabe Coef. Sd. err. p-vaue Dependen Variabe: nhse Dependen Variabe: ntln Dependen Variabe: nccs Dependen Variabe: nmln CONS CONS nhse( 1) < nhse( 1) nhpr( 1) nhpr( 1) GFC nhpr( GFC nhpr( ndta( 1) ndta( 1) nrtd( 1) nrtd( 1) ninb( 1) ninb( 1) nmhp( 1) nmhp( 1) ninc( 1) < ninc( 1) GFC ninc( 1) GFC ninc( 1) GFC EHSE( 1) R-squared R-squared F-saisic < F-saisic < CONS CONS ntln( 1) < ntln( 1) ntpr( 1) ntpr( 1) GFC ntpr( GFC ntpr( 1) nret( 1) nret( 1) nmvs( 1) nmvs( 1) ncms( 1) ncms( 1) ninb( 1) ninb( 1) ninc( 1) ninc( 1) GFC ninc( 1) GFC ninc( 1) GFC ETLN( 1) R-squared R-squared F-saisic < F-saisic < CONS CONS nccs( 1) < nccs( 1) < ncpr ncpr < GFC ncpr GFC ncpr nccp nccp ncms ncms ninb ninb ninc ninc GFC ninc GFC ninc GFC ECCS( 1) < R-squared R-squared F-saisic < F-saisic < CONS < CONS nmln( 1) nmln( 1) nmpr nmpr GFC nmpr GFC nmpr nprp nprp npla npla < npas npas nasx nasx < ninb ninb ninc < ninc GFC ninc GFC ninc < GFC EMLN( 1) < R-squared R-squared F-saisic < F-saisic < Dependen Variabe: nhse Dependen Variabe: ntln Dependen Variabe: nccs Dependen Variabe: nmln 13

15 The fina ong run demand mode in Tabe 3 is for margin oans (MLN). We firs can see ha he probabiiy of a one-quarer increase in margin oans being foowed by anoher is 34.3 percen. We can aso see ha aggregae margin oans exhibi a significan and posiive price effec of (price ineasic) and are highy income easic (2.487) (a superior good). Oher significan demand facors for margin oans are he posiive impacs of he proporion of aggregae ending-o-aggregae credi imi (PLA), he proporion of aggregae credi imi-o-vaue of he underying securiy (PAS), and he ASX A Ordinaries Index (ASX). A oher hings being equa, a 1% in aggregae ending-o-aggregae credi imi wih increase margin oans by 0.83%, a 1% increase in aggregae credi imi-o-vaue of he underying securiy wih increase margin oans by 0.48% whie a 1% increase in he ASX A Ords wi increase margin oans by 0.74%. Imporany, we can evidence he highy derimena effec of he GFC on he demand for margin oans wih he ineracion of GFC wih income easiciy being highy significan and negaive, suggesing ha whie before he GFC margin oans were a superior good, during and afer he GFC hey are a inferior good (quaniy of demand faing wih an increase in income). The hird and fina sep of he ARDL procedure is o esimae he shor-run dynamic coefficiens associaed wih he ECM from he ong-run reaionship as specified in Equaion (3). The resus are in coumns 6 8 in Tabe 2 wih hose for HSE in he firs pane, TLN in he second pane, CCS in he hird pane and MLN in he fourh pane. We firs consider he overa fi and dynamics of boh modes. Firs, he ong-run modes are ceary beer abe o expain he variaions in reai finance demand han he shor-run modes, wih he HSE mode expaining 41.05% of he variaion in housing finance demand in he shor run (compared o 99.17% in he ong run), TLN expaining 31.73% of variaion in he shor run and 98.84% in he ong, CCS 64.59% of variaion in he shor run and 99.99% in he ong run. The ony possibe excepion is he demand funcion for margin oans where he mode expains 94.6% of he variaion in he shor-run mode and 99.72% in he ong run. Second, he esimaed error correcion coefficiens (ECR) of for he HSE mode, for he TLN mode, for he CCS mode and for he MLN mode are significan a he 1% eve of significance. These indicae he high speed of adjusmen o equiibrium afer a shock: ha is, mos of he deviaion in he demand facors from a previous quarer s shock converges back o he ong-run equiibrium in he curren quarer. We are now focus on he differences in he esimaed coefficiens in he ong and shor-run modes for each ype of reai finance demand. Sar again wih housing oans (HSE). Once again, apar from he agged vaue of housing oan demand, expeced infaion (INB) has a significan negaive effec on he demand for housing oans in he shor run. The ony oher significan facor is housing ineres paymens-o-disposabe income (deb servicing). There is again no significan shor-run price whie he income effec ha was significan in he ong run is no onger significan. There is aso no significan shor-run effec of he GFC on he demand for housing oans a he aggregae eve, eiher in isef or hough changes in he price or income easiciy of housing oan demand. 14

16 For erm oans in he shor run (TLN), we can see ha he GFC has made he price easiciy of demand for erm oans even more ineasic, whie he demand for erm oans is srongy posiivey associaed wih reai rade such ha a 1% increase in reai rade is associaed wih a 1.51% increase in he demand for erm oans. Expeced infaion (INB) remains a significan demand facor in he shor run whie here is no obvious impac of he GFC. The income easiciy of erm oans is no onger significan. Wih credi cards, he ony significan coefficien oher han agged credi card oans is he price of credi card oans (CPR), wih he indicaion ha credi cards are price ineasic in he shor run bu ha he demand for credi card oans is argey unresponsive o he price of hese oans in he ong run. Finay, wih margin oans (MLN) we can see ha PLA, PAS and ASX remain significan in he shor run as in he ong run. The proporion of proeced margin ending (PRP) is now significan in he shor run, suggesing ha he presence of his faciiy increases he demand for margin oans. As for price easiciy, no significan effec is found excep since he GFC when he price easiciy of demand has become significany more easic (posiive). Income easiciy is aso remain posiive and highy easic in he shor run as in he ong run, hough he significan negaive vaue on income easiciy since he GFC suggess ha margin oans have become somewha ess income easic. 6. Concusion This paper uses he ARDL procedure o mode demand equaions for four submarkes of reai finance: housing oans, erms oans, credi card oans, and margin oans for various sampes periods up o 25 years and uni June Pane uni roo ess are used o indicae ha a of he quarery series in he anaysis are eiher saionary in eves or I(0) or in firs-differences or I(1). The bounds esing procedure for coinegraion subsequeny finds ong-run coinegraing reaionship in a modes excep for housing oans where he resus are marginay inconcusive. In he ong run, we find significan price easiciies ony for erm oans and margin oans, and significan income easiciies of demand for housing oans, erm oans and margin oans. We aso find ha he GFC has ony significany affeced he ong-run demand for erm oans and margin oans. In he shor run, we find ha he GFC has had a significan effec on he price easiciy of demand for erm oans and margin oans, wih ony credi card oans exhibiing a significan price easiciy of demand oherwise. Expeced infaion is aso a key facor affecing reai finance demand. Overa, mos of he submarkes in he anaysis indicae ha reai finance demand is price ineasic bu more income easic han convenionay hough. References Aessie, R., S. Hochguere and G. Weber (2005). Consumer credi: Evidence from Iaian micro daa, Journa of he European Economic Associaion, 3(1),

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