The role of house prices in the monetary policy transmission mechanism in the U.S
AbstractWe analyze the role of house prices in the monetary policy transmission mechanism in the U.S. using structural VARs. The VAR is identified using a combination of short-run and long-run (neutrality) restrictions, allowing for a contemporaneous interaction between monetary policy and various asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find the role of house prices in the monetary transmission mechanism to increase considerably. In particular, following a monetary policy shock that raises the interest rate by one percentage point, house prices fall immediately by 1 percent, for then to decline by a total of 4-5 percent after three years. Furthermore, the fall in house prices enhances the negative response in output and consumer price inflation that has traditionally been found in the conventional literature.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2008/24.
Length: 24 pages
Date of creation: 12 Dec 2008
Date of revision:
VAR; monetary policy; house prices; identification.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-CBA-2009-01-03 (Central Banking)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-MON-2009-01-03 (Monetary Economics)
- NEP-URE-2009-01-03 (Urban & Real Estate Economics)
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