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Monetary policy and housing sector dynamics in a large-scale Bayesian vector autoregressive model

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  • Rangan Gupta
  • Marius Jurgilas
  • Alain Kabundi
  • Stephen M. Miller

Abstract

Our paper considers the 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 autoregressive 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 react more quickly and sharply than starts and permits and exhibit 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 findings in the sense that the response patterns in the South most closely match the response patterns in the nation as a whole. The West's responses differs the most from the other regions, especially for the impulse responses of housing starts and permits.

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  • 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, vol. 16(1), pages 1-20, August.
  • Handle: RePEc:taf:ijspmg:v:16:y:2011:i:1:p:1-20
    DOI: 10.3846/1648715X.2011.621466
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    Cited by:

    1. Hideaki Hirata & M. Ayhan Kose & Christopher Otrok & Marco E Terrones, 2013. "Global House Price Fluctuations: Synchronization and Determinants," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 119-166.
    2. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    3. Ahdi N. Ajmi & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2014. "Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach," Working Papers 201436, University of Pretoria, Department of Economics.
    4. Helmut Lütkepohl, 2014. "Structural Vector Autoregressive Analysis in a Data Rich Environment: A Survey," SFB 649 Discussion Papers SFB649DP2014-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. Cesa-Bianchi, Ambrogio, 2013. "Housing cycles and macroeconomic fluctuations: A global perspective," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 215-238.
    6. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers 1211, University of Nevada, Las Vegas , Department of Economics.
    7. 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 mode," Working Papers 15-26, Eastern Mediterranean University, 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, vol. 32(C), pages 161-171.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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