Housing Market and the Transmission of Monetary Policy: Evidence from U.S. States
AbstractWhat are the effects of monetary policy on the housing market? Is the response of the housing market similar across different states? We explore the impact of monetary policy shocks on real house prices and housing investment, using US state-level data. To this end we estimate VAR models for the period 1988-2009, to assess the differential effect - if any - of a common monetary policy shock on house prices and investment. Our VAR models also allow us to explore the macroeconomic effect of wealth shocks that originate in the housing market (housing prices). Our empirical models include key macroeconomic variables, namely personal income, prices and the federal funds rate, as well as housing market variables, e.g. real house prices, given by the FHFA house price index, and housing investment, proxied by the number of housing starts. Our baseline estimates suggest that transmission of monetary policy is heterogeneous across US states. Moreover, our VAR models indicate the presence of a wealth effect across most US states, as a positive housing price innovation leads to a strong, negative response of personal income.
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Bibliographic InfoPaper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2011_14.
Date of creation: Sep 2011
Date of revision: Sep 2011
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House prices; Monetary policy transmission; VAR; Wealth effect.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CBA-2011-10-15 (Central Banking)
- NEP-MON-2011-10-15 (Monetary Economics)
- NEP-URE-2011-10-15 (Urban & Real Estate Economics)
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