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House prices and monetary policy

Author

Listed:
  • Brito Paulo
  • Marini Giancarlo

    (Department of Economics, Law and Institutions, Tor Vergata University, Via Columbia 2, 00133 Rome, Italy)

  • Piergallini Alessandro

    (Department of Economics and Finance, Tor Vergata University, Via Columbia 2, 00133 Rome, Italy)

Abstract

This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It demonstrates that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also proves that booms or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices.

Suggested Citation

  • Brito Paulo & Marini Giancarlo & Piergallini Alessandro, 2016. "House prices and monetary policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(3), pages 251-277, June.
    • Handle: RePEc:bpj:sndecm:v:20:y:2016:i:3:p:251-277:n:1
    DOI: 10.1515/snde-2014-0072
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    Cited by:

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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