Financial Liberalization And The Sensitivity Of House Prices To Monetary Policy: Theory And Evidence
We analyse the impact of financial liberalization on the link between monetary policy and house prices. We present a simple model of a small open economy subjectto credit constraints. The model shows that the higher the degree of financial liberalizationis, the stronger is the impact of interest rate shocks on house prices. We then usevector autoregressions to study the role of monetary policy shocks in house price fluctuations in Finland, Sweden and the UK, characterized by financial liberalizationepisodes over the last 20 years. We find that the response of house prices to interestrate surprises is bigger and more persistent in periods characterized by more liberalized financial markets. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester 2003
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Volume (Year): 71 (2003)
Issue (Month): 1 (January)
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- Garry J. Schinasi & Willy W. Hoffmaister, 1994. "Asset Prices, Financial Liberalization, and the Process of Inflation in Japan," IMF Working Papers 94/153, International Monetary Fund.
- Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June. Full references (including those not matched with items on IDEAS)
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