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Asymmetric effects of monetary policy in regional housing markets

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  • Knut Are Aastveit

    (Norges Bank (Central Bank of Norway))

  • André K. Anundsen

    (Norges Bank (Central Bank of Norway))

Abstract

The responsiveness of house prices to monetary policy shocks depends both on the nature of the shock – expansionary versus contractionary – and on city-specific housing supply elasticities. We test and find supporting evidence for the hypothesis that expansionary monetary policy shocks have a larger impact on house prices when supply elasticities are low on 263 US metropolitan areas. We also test whether contractionary shocks are orthogonal to supply elasticities, as implied by downward rigidity of housing supply, and find supporting evidence. A final theoretical conjecture is that contractionary shocks should have a greater impact on house prices than expansionary shocks, as long as supply is not perfectly inelastic. For areas with high housing supply elasticity, our results are in line with this conjecture. However, for areas with an inelastic housing supply, we find that expansionary shocks have a greater impact on house prices than contractionary shocks. We provide evidence that this is related to a momentum effect that is more pronounced when house prices are increasing than when they are falling.

Suggested Citation

  • Knut Are Aastveit & André K. Anundsen, 2017. "Asymmetric effects of monetary policy in regional housing markets," Working Paper 2017/25, Norges Bank.
  • Handle: RePEc:bno:worpap:2017_25
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    Cited by:

    1. Knut Are Aastveit & Bruno Albuquerque & Andr� Anundsen, 2019. "Changing supply elasticities and regional housing booms," Working Papers No 04/2019, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    2. Juan Carlos Cuestas & Merike Kukk & Natalia Levenko, 2023. "Misalignments in house prices and economic growth in Europe," Applied Economics, Taylor & Francis Journals, vol. 55(28), pages 3215-3237, June.
    3. James Graham & Alistair Read, 2023. "House Prices, Monetary Policy and Commodities: Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 1-31, March.
    4. Susan M. Wachter, 2018. "Credit risk transfer, informed markets, and securitization," Economic Policy Review, Federal Reserve Bank of New York, issue 24-3, pages 117-137.
    5. Sandro M. Reia & P. Suresh C. Rao & Marc Barthelemy & Satish V. Ukkusuri, 2022. "Spatial structure of city population growth," Nature Communications, Nature, vol. 13(1), pages 1-10, December.

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    More about this item

    Keywords

    House prices; Heterogeneity; Monetary policy; Non-linearity; Supply elasticities;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • 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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