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Monetary Policy, the Housing Market, and the 2008 Recession: A Structural Factor Analysis

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  • Matteo Luciani

    ()
    (Dipartimento di Economia, Sapienza University of Rome Italy)

Abstract

DThis paper estimates a Structural Dynamic Factor Model on a panel of 102 US quarterly series. We model economic comovements by means of 5 underlying structural shocks (oil price, productivity, aggregate demand, monetary policy, and housing demand). The results of the benchmark model (impulse responses and variance decompositions) are in line with those predicted by economic theory and usually estimated by the empirical literature. We show that while over the whole sample the contribution of the housing demand shock is negligible, after the early eighties' liberalizations in housing finance, the housing demand shock has become a substantial source of business cycle fluctuations. The model is then used to analyze the causes of the 2008 recession: results indicate that we cannot exclude that monetary policy played a non negligible role in leading the way for the downturn in residential investment and the ensuing recession.\\ JEL Classification: C32, E32, E52, R2

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Bibliographic Info

Paper provided by Doctoral School of Economics, Sapienza University of Rome in its series Working Papers with number 7.

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Date of creation: 2010
Date of revision: 2010
Handle: RePEc:dsc:wpaper:7

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Web page: http://phdschool-economics.dse.uniroma1.it/website/
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Keywords: Structural Factor Model; Business Cycle; Monetary Policy; Housing.;

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