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

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  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

  • Alain Kabundi

    ()
    (Department of Economics and Econometrics, University of Johannesburg)

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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Bibliographic 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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Keywords: Monetary Policy; House Price Inflation; FAVAR;

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Cited by:
  1. Ahdi N. Ajmi & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2014. "Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach," Working Papers, University of Pretoria, Department of Economics 201436, University of Pretoria, Department of Economics.
  2. Beatrice D. Simo-Kengne & Mehmet Balcilar & Rangan Gupta & Monique Reid & Goodness C. Aye, 2012. "Is The Relationship Between Monetary Policy And House Prices Asymmetric In South Africa? Evidence From A Markov-Switching Vector Autoregressive Model," Working Papers, University of Pretoria, Department of Economics 201222, University of Pretoria, Department of Economics.
  3. Christophe Andre & Rangan Gupta & Patrick T. Kanda, 2011. "Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure," Working Papers, University of Pretoria, Department of Economics 201118, University of Pretoria, Department of Economics.
  4. Rangan Gupta & Marius Jurgilas & Alain Kabundi & Stephen M. Miller, 2011. "Monetary policy and housing sector dynamics in a large-scale Bayesian vector autoregressive model," International Journal of Strategic Property Management, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 1-20, August.
  5. Maria Christidou & Panagiotis Konstantinou, 2011. "Housing Market and the Transmission of Monetary Policy: Evidence from U.S. States," Discussion Paper Series 2011_14, Department of Economics, University of Macedonia, revised Sep 2011.
  6. Musso, Alberto & Neri, Stefano & Stracca, Livio, 2010. "Housing, consumption and monetary policy: how different are the US and the euro area?," Working Paper Series, European Central Bank 1161, European Central Bank.
  7. Rangan Gupta & Alain Kabundi & Mampho P. Modise, 2009. "Has the SARB Become More Effective Post Inflation Targeting?," Working Papers, University of Pretoria, Department of Economics 200925, University of Pretoria, Department of Economics.
  8. Simo-Kengne, Beatrice D. & Balcilar, Mehmet & Gupta, Rangan & Reid, Monique & Aye, Goodness C., 2013. "Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 161-171.
  9. Rangan Gupta, 2012. "Forecasting House Prices for the Four Census Regions and the Aggregate US Economy: The Role of a Data-Rich Environment," Working Papers, University of Pretoria, Department of Economics 201214, University of Pretoria, Department of Economics.
  10. Kazi, Irfan Akbar & Wagan, Hakimzadi & Akbar, Farhan, 2013. "The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries," Economic Modelling, Elsevier, Elsevier, vol. 30(C), pages 90-116.
  11. Wadud, I.K.M. Mokhtarul & Bashar, Omar H.M.N. & Ahmed, Huson Joher Ali, 2012. "Monetary policy and the housing market in Australia," Journal of Policy Modeling, Elsevier, Elsevier, vol. 34(6), pages 849-863.

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