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Financial Liberalisation and the Sensitivity of House Prices to Monetary Policy: Theory and Evidence

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Author Info
Matteo Iacoviello () (Boston College)
Raoul Minetti () (Michigan State University)

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Abstract

We analyse the impact of financial liberalisation on the link between monetary policy and house prices. We present a simple model of a small open economy subject to credit constraints. The model shows that the higher the degree of financial liberalisation, the stronger is the impact of interest rate shocks on house prices. We then use vector autoregressions to study the role of monetary policy shocks in house price fluctuations in Finland, Sweden and UK, characterised by financial liberalisation episodes over the last twenty years. We find that the response of house prices to interest rate surprises is bigger and more persistent in periods characterised by more liberalised financial markets.

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File URL: http://fmwww.bc.edu/EC-P/WP538.pdf
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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 538.

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Length: 42 pages
Date of creation: 01 Oct 2002
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Publication status: Forthcoming, The Manchester School
Handle: RePEc:boc:bocoec:538

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Related research
Keywords: House prices monetary policy financial liberalisation.

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June. [Downloadable!] (restricted)
  2. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
    Other versions:
  3. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Alexander W. Hoffmaister & Garry J. Schinasi, 1994. "Asset Prices, Financial Liberalization, and the Process of Inflation in Japan," IMF Working Papers 94/153, International Monetary Fund.
  5. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Urban Jermann & Vincenzo Quadrini, 2006. "Financial Innovations and Macroeconomic Volatility," NBER Working Papers 12308, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Matteo Iacoviello, 2002. "House Prices and Business Cycles in Europe: a VAR Analysis," Boston College Working Papers in Economics 540, Boston College Department of Economics. [Downloadable!]
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