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Monetary Policy, Capital Inflows, and the Housing Boom

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  • Sá, F.
  • Wieladek, T.

Abstract

We estimate an open economy VAR model to quantify the effect of monetary policy and capital inflows shocks on the US housing market. The shocks are identified with sign restrictions derived from a standard DSGE model. We find that monetary policy shocks have a limited effect on house prices and residential investment. In contrast, capital inflows shocks driven by an increase in foreign savings have a positive and persistent effect on both housing variables. Other sources of capital inflows shocks, such as foreign monetary expansion or an increase in aggregate demand in the US, have a more limited role.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1141.

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Date of creation: 30 May 2011
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Handle: RePEc:cam:camdae:1141

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Cited by:
  1. Sa, Filipa & Towbin, Pascal & wieladek, tomasz, 2011. "Low interest rates and housing booms: the role of capital inflows, monetary policy and financial innovation," Bank of England working papers 411, Bank of England.
  2. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs E:47/2012, Bank of Finland.
  3. Agnieszka Stążka-Gawrysiak, 2011. "Poland on the road to the euro: How serious is the risk of boom-bust cycles after the euro adoption? An empirical analysis," National Bank of Poland Working Papers 103, National Bank of Poland, Economic Institute.

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