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The Effect Of Monetary Policy On House Price Inflation: A Factor Augmented Vector Autoregression (Favar) Approach

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Author Info
Rangan Gupta () (Department of Economics, University of Pretoria)
Alain Kabundi () (Department of Economics and Econometrics, University of Johannesburg)

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Abstract

This paper assesses the impact of monetary policy on house price inflation for the nine census divisions of the US economy using a factor-augmented VAR (FAVAR), estimated a large data set comprising of 126 quarterly series over the period 1976:01 to 2005:02. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the census divisions. In addition, our findings suggests the importance of South Atlantic, East South Central, West South Central, Mountain and the Pacific divisions, in particular, in shaping the dynamics of US house price inflation.

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Publisher Info
Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200903.

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Length: 11 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:pre:wpaper:200903

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Related research
Keywords: Monetary Policy; House Price Inflation; FAVAR;

Other versions of this item:

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
R2 - Urban, Rural, and Regional Economics - - Household Analysis

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009. [Downloadable!]
    Other versions:
  2. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June. [Downloadable!]
    Other versions:
  5. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  6. Gerald A. Carlino & Robert H. DeFina, 1999. "Do states respond differently to changes in monetary policy?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 17-27. [Downloadable!]
  7. David E. Rapach & Jack K. Strauss, 2007. "Forecasting real housing price growth in the Eighth District states," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Nov, pages 33-42. [Downloadable!]
  8. Matteo Iacoviello, 2002. "House Prices and Business Cycles in Europe: a VAR Analysis," Boston College Working Papers in Economics 540, Boston College Department of Economics. [Downloadable!]
  9. James H. Stock & Mark W. Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
    Other versions:
  10. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June. [Downloadable!] (restricted)
    Other versions:
  11. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings, Federal Reserve Bank of Kansas City, pages 77-128. [Downloadable!]
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  12. Karl Case & John Quigley & Robert Shiller, 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Advances in Macroeconomics, Berkeley Electronic Press, vol. 5(1), pages 1235-1235. [Downloadable!] (restricted)
    Other versions:
  13. Jonathan McCarthy & Richard W. Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 139-158. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rangan Gupta & Marius Jurgilas & Alain Kabundi & Stephen M. Miller, 2009. "Monetary Policy and Housing Sector Dynamics in a Large-Scale Bayesian Vector Autoregressive Model," Working papers 2009-19, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  2. Rangan Gupta & Marius Jurgilas & Alain Kabundi, 2009. "The Effect Of Monetary Policy On Real House Price Growth In South Africa: A Factor Augmented Vector Autoregression (Favar) Approach," Working Papers 200905, University of Pretoria, Department of Economics.
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This page was last updated on 2009-10-28.

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