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Low Interest Rates and Housing Bubbles: Still No Smoking Gun

In: The Role of Central Banks in Financial Stability How Has It Changed?

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  • Kenneth N. Kuttner

    (Williams College, USA)

Abstract

The following sections are included:IntroductionWhy Interest Rates Affect House PricesThe user cost frameworkA dynamic user cost modelThe credit channelThe risk-taking channelEvidence on the Response of House Prices to Interest RatesExisting literatureResults from an error-correction modelInterest Rates and the Property Price Boom of the mid-2000sThe U.S. experienceA cross-country explorationConclusionsReferencesAppendix

Suggested Citation

  • Kenneth N. Kuttner, 2013. "Low Interest Rates and Housing Bubbles: Still No Smoking Gun," World Scientific Book Chapters, in: Douglas D Evanoff & Cornelia Holthausen & George G Kaufman & Manfred Kremer (ed.), The Role of Central Banks in Financial Stability How Has It Changed?, chapter 8, pages 159-185, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814449922_0008
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    References listed on IDEAS

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    1. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    2. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    3. Alan Greenspan, 2005. "Federal Reserve Board's semiannual monetary policy report to the Congress: testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, July 21, 2005," Speech 115, Board of Governors of the Federal Reserve System (U.S.).
    4. Filipa Sa & Pascal Towbin & Tomasz Wieladek, 2011. "Low interest rates and housing booms: the role of capital inflows, monetary policy and financial innovation," Globalization Institute Working Papers 79, Federal Reserve Bank of Dallas.
    5. Joshua Gallin, 2008. "The Long‐Run Relationship Between House Prices and Rents," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(4), pages 635-658, December.
    6. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
    7. Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
    8. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 729-752.
    9. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
    10. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the macroeconomy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(1), pages 180-205, spring.
    11. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
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    Cited by:

    1. Denis Gorea & Oleksiy Kryvtsov & Marianna Kudlyak, 2022. "House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data," Working Paper Series 2022-16, Federal Reserve Bank of San Francisco.

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    More about this item

    Keywords

    Financial Stability; Financial Regulation; Macroprudential Regulation; Systemic Risk; Dodd-Frank; Financial Crisis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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