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Monetary Policy Shocks and Local Housing Prices

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  • Shihan Xie

    (University of Illinois)

Abstract

This paper studies the channels by which monetary policy shocks affect local housing prices. It first documents there is a sluggish response of housing prices, suggesting that informational frictions may be potentially important. It then develops a structural model of housing prices with information frictions, and exploits variations in housing prices across metropolitan statistical areas to estimate it. The important finding is that although households are well-informed about local demand, they are ill-informed about how monetary policy affects the local housing market. A counterfactual experiment using the estimated model implies that deviations from the Taylor rule in the early 2000s contributed to about two-fifths of the subsequent housing boom.

Suggested Citation

  • Shihan Xie, 2025. "Monetary Policy Shocks and Local Housing Prices," International Journal of Central Banking, International Journal of Central Banking, vol. 21(3), pages 327-376, July.
    • Handle: RePEc:ijc:ijcjou:y:2025:q:3:a:8
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    References listed on IDEAS

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    1. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    2. Ben S. Bernanke, 2010. "Monetary policy and the housing bubble: a speech at the Annual Meeting of the American Economic Association, Atlanta, Georgia, January 3, 2010," Speech 499, Board of Governors of the Federal Reserve System (U.S.).
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    4. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
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    6. Barakchian, S. Mahdi & Crowe, Christopher, 2013. "Monetary policy matters: Evidence from new shocks data," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 950-966.
    7. repec:fip:fedgsq:y:2010:x:4 is not listed on IDEAS
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