---
title: "Investigating the Residential Investment Dynamics in Slovenia"
authors: "(Institute for Economic Research, Slovenia monograph, 2023)"
source: "Institute for Economic Research (IER)"
source_url: "https://www.ier.si/wp-content/uploads/2023/12/monografija_07-2023.pdf"
paper_id: "IER Slovenia Monograph 07-2023"
harvested: 2026-08-22
year: 2023
keywords: [residential investment, bayesian VAR, sign restrictions, impulse response]
pdf_url: "https://www.ier.si/wp-content/uploads/2023/12/monografija_07-2023.pdf"
---
## Abstract

Darja Zabavnik's 2023 monograph (IER, Ljubljana, EkonomIERa 07-2023) investigates the structural shocks that historically affected residential investment in Slovenia, a small open economy, with an emphasis on the contributions of loan-supply and loan-demand shocks to housing dynamics. The study adopts a Bayesian Vector Autoregressive (BVAR) framework estimated on quarterly data covering approximately 2004Q1 to 2023Q2. The endogenous variables are the mortgage lending rate, loans to households, and residential investment, with short-term interest rates and household compensation included as exogenous controls, and the lag order chosen by standard information criteria.

Identification is achieved through sign restrictions imposed on the impact responses, distinguishing three structural shocks: residential investment demand shocks, other loan-demand shocks, and loan-supply shocks, all normalized to imply an increase in the lending rate. The estimated model supports structural inference through impulse-response functions, forecast-error variance decompositions, and historical decompositions. The results indicate that residential investment is, on average, most affected by "other loan demand" shocks rather than by specific loan-supply or intrinsic residential-demand shocks, and that the largest swings in residential investment are driven by investment demand and loan-supply shocks, particularly during periods of economic and financial distress. Macroprudential policy is found to have effectively counterbalanced strong household loan demand.

The sign-restriction scheme permits the supply curve to be characterised as relatively flat and the demand curve as relatively steep, since loan-supply shocks predominantly affect the mortgage rate while loan-demand shocks are the main drivers of loan quantities. Historical decomposition highlights the sharp fall in residential investment at the onset of the Great Recession (driven by loan-supply shocks and negative residential investment demand shocks), the supportive post-COVID conditions from accommodative monetary policy and high loan supply, and, at the end of the sample, a mild contraction in 2023 Q1–Q2 that the author characterises as resembling a path not observed since the 2008 crisis.