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House prices, consumption, and monetary policy: a financial accelerator approach

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  • Aoki, Kosuke

    (Universitat Pompeu Fabra)

  • James Proudman
  • Gertjan Vlieghe

Abstract

We consider a general equilibrium model where asymmetric information problems create frictions in credit markets used by households. In our economy, houses serve as collateral to lower the agency costs related to borrowing. We show that this amplifies the effect of monetary policy shocks on housing investment, house prices and consumption. We consider the effect of a structural change in credit markets that lowers the transaction costs of additional borrowing against housing equity. We show that such a change would increase the effect of monetary policy shocks on consumption, but would decrease the effect on house prices and housing investment.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 7.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:7

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Keywords: house prices; credit frictions; monetary policy; financial accelerator; consumption;

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