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House Prices and Monetary Policy

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Abstract

This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It shows that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also demonstrates that boom or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices

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File URL: ftp://www.ceistorvergata.it/repec/rpaper/RP250.pdf
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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 250.

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Length: 47 pages
Date of creation: 01 Aug 2012
Date of revision: 01 Aug 2012
Handle: RePEc:rtv:ceisrp:250

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

Related research

Keywords: House Prices; Housing-Wealth Effects; Monetary Policy Rules; Global Determinacy; Heteroclinic Orbits.;

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  1. Marini, Giancarlo & van der Ploeg, Frederick, 1987. "Monetary and Fiscal Policy in an Optimizing Model with Capital Accumulation and Finite Lives," CEPR Discussion Papers 167, C.E.P.R. Discussion Papers.
  2. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, April.
  3. Rudiger Ahrend & Boris Cournède & Robert W.R. Price, 2008. "Monetary Policy, Market Excesses and Financial Turmoil," OECD Economics Department Working Papers 597, OECD Publishing.
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