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Monetary Policy and Housing Sector Dynamics in a Large-Scale Bayesian Vector Autoregressive Model

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Author Info
Rangan Gupta (University of Pretoria)
Marius Jurgilas (Bank of England)
Alain Kabundi (University of Johannesburg)
Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas)

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Abstract

Our paper considers this channel whereby monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector. The analysis uses impulse response functions obtained from a large-scale Bayesian Vector Autoregression (LBVAR) model that incorporates 143 monthly macroeconomic variables over the period of 1986:01 to 2003:12, including 21 variables relating to the housing sector at the national and four census regions. We find at the national level that housing starts, housing permits, and housing sales fall in response to the tightening of monetary policy. Housing sales reacts more quickly and sharply than starts and permits and exhibits more duration. Housing prices show the weakest response to the monetary policy shock. At the regional level, we conclude that the housing sector in the South drives the national data. The responses in the West differ the most from the other regions, especially for the impulse responses of housing starts and permits.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2009-19.

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Date of creation: Jun 2009
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Handle: RePEc:uct:uconnp:2009-19

Note: We would like to thank Marta Banbura for providing us with the codes used in estimating the large-scale BVAR and her assistance with its implementation. The views expressed herein are those of the authors and do not necessarily reflect the views of the Bank of England.
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Related research
Keywords: Monetary policy; Housing sector dynamics; Large-Scale BVAR models;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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