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Infrequent Housing Adjustment, Limited Participation, and Monetary Policy

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  • ANDRA GHENT

Abstract

This paper asks why monetary contractions have strong effects on the housing market. The paper presents a model with staggered housing adjustment in which monetary policy has real effects in the absence of any rigidity in producer pricing or wages. Limited participation in financial markets leads to a rise in the real mortgage rate following an increase in the nominal short rate. Since households must take on a mortgage to consume housing, the rise in the real interest rate reduces the share of residential investment in output.

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  • Andra Ghent, 2012. "Infrequent Housing Adjustment, Limited Participation, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 931-955, August.
  • Handle: RePEc:wly:jmoncb:v:44:y:2012:i:5:p:931-955
    DOI: 10.1111/j.1538-4616.2012.00516.x
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    Cited by:

    1. Charles Ka Yui LEUNG & Joe Cho Yiu NG, 2018. "Macro Aspects of Housing," ISER Discussion Paper 1030, Institute of Social and Economic Research, Osaka University.
    2. Carlos Garriga & Finn E. Kydland & Roman Šustek, 2017. "Mortgages and Monetary Policy," Review of Financial Studies, Society for Financial Studies, vol. 30(10), pages 3337-3375.
    3. Gabrovski, Miroslav & Ortego-Marti, Victor, 2019. "The cyclical behavior of the Beveridge Curve in the housing market," Journal of Economic Theory, Elsevier, vol. 181(C), pages 361-381.
    4. Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Search and Credit Frictions in the Housing Market," Working Papers 201816, University of California at Riverside, Department of Economics.
    5. Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Housing Market Dynamics with Search Frictions," Working Papers 201804, University of California at Riverside, Department of Economics.

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