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Effects of Monetary Policy on the REIT Returns - Evidence from the United Kingdom

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  • I.Fatnassi
  • S.Chawechi
  • Zied Ftiti
  • A.Ben Maatoug

Abstract

In this paper, we analyse whether a monetary policy based on three main variables (inflation, money supply, and output gap) has a nonlinear impact on real estate investment trust (REIT) markets. In addition, we extend our analysis to examine whether these monetary policy components impact the possibility of boom and bust regimes occurring in the market. Empirically, we propose different Markov-switching model variants to determine the nonlinear time-varying impact of monetary policy on the REIT market. Our results show the monetary policy environment is supposed to affect, on one hand, the REIT returns and, on another hand, the possibility of boom and bust markets. We prove that expansionary monetary policy has an impact only in the case of boom market. However, an increase in the inflation rate decreases the probability in remaining in the bust regime. As consequence, we have already outlined several monetary transmission mechanisms that show house prices to have important effects on aggregate demand. Our results confirm that REIT markets are not efficient.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-063.

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Length: 24 pages
Date of creation: 06 Jan 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-063

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Keywords: Monetary policy; REIT; Boom and Bust; Nonlinear; Markov-switching;

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