Financial Liberalisation and the Sensitivity of House Prices to Monetary Policy: Theory and Evidence
We analyse the impact of financial liberalisation on the link between monetary policy and house prices. We present a simple model of a small open economy subject to credit constraints. The model shows that the higher the degree of financial liberalisation, the stronger is the impact of interest rate shocks on house prices. We then use vector autoregressions to study the role of monetary policy shocks in house price fluctuations in Finland, Sweden and UK, characterised by financial liberalisation episodes over the last twenty years. We find that the response of house prices to interest rate surprises is bigger and more persistent in periods characterised by more liberalised financial markets.
|Date of creation:||01 Oct 2002|
|Publication status:||published, The Manchester School|
|Contact details of provider:|| Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA|
Web page: http://fmwww.bc.edu/EC/
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- Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
- Ben S. Bernanke & Mark Gertler, 1995.
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American Economic Association, vol. 9(4), pages 27-48, Fall.
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- Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
- Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
- Garry J. Schinasi & Willy W. Hoffmaister, 1994. "Asset Prices, Financial Liberalization, and the Process of Inflation in Japan," IMF Working Papers 94/153, International Monetary Fund. Full references (including those not matched with items on IDEAS)
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