Monetary policy and housing prices in an estimated DSGE model for the US and the euro area

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Monetary policy and housing prices in an estimated DSGE model for the US and the euro area

Author Info

Matthieu Darracq Pariès () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Alessandro Notarpietro () (Università Bocconi, Via Sarfatti 25, I-20136 Milano, Italy.)

Additional information is available for the following registered author(s):

Matthieu Darracq Paries

Abstract

We estimate a two-country Dynamic Stochastic General Equilibrium model for the US and the euro area including relevant housing market features and examine the monetary policy implications of housing-related disturbances. In particular, we derive the optimal monetary policy cooperation consistent with the structural specification of the model. Our estimation results reinforce the existing evidence on the role of housing and mortgage markets for the US and provide new evidence on the importance of the collateral channel in the euro area. Moreover, we document the various implications of credit frictions for the propagation of macroeconomic disturbances and the conduct of monetary policy. We find that allowing for some degree of monetary policy response to fluctuations in the price of residential goods improves the empirical fit of the model and is consistent with the main features of optimal monetary policy response to housing-related shocks. JEL Classification: E4, E5, F4.

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Paper provided by European Central Bank in its series Working Paper Series with number 972.

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Length: 69 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:ecb:ecbwps:20080972

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This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-07 (All new papers)
NEP-CBA-2008-12-07 (Central Banking)
NEP-DGE-2008-12-07 (Dynamic General Equilibrium)
NEP-EEC-2008-12-07 (European Economics)
NEP-MAC-2008-12-07 (Macroeconomics)
NEP-MON-2008-12-07 (Monetary Economics)
NEP-OPM-2008-12-07 (Open MacroEconomics)
NEP-URE-2008-12-07 (Urban & Real Estate Economics)

References listed on IDEAS
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Frank Smets & Matthieu Darracq Pariès & Stéphane Adjemian, 2008. "A quantitative perspective on optimal monetary policy cooperation between the US and the euro area," Working Paper Series 884, European Central Bank. [Downloadable!]
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Other versions:
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Other versions:
- Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004. [Downloadable!]
Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July. [Downloadable!] (restricted)
Other versions:
- Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
Matthieu Darracq Pariès & Stéphane Adjemian & Stéphane Moyen, 2007. "Optimal monetary policy in an estimated DSGE for the euro area," Working Paper Series 803, European Central Bank. [Downloadable!]
V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 223, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
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