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House Prices and Monetary Policy in Colombia

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  • Martha López Piñeros

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Abstract

This paper investigates the possible responses of an inflation-targeting monetary policy in the face of asset price deviations from fundamental values. Focusing on the housing sector of the Colombian economy, we consider a general equilibrium model with frictions in credit market and bubbles in housing prices. We show that monetary policy is less efficient when it responds directly to asset price of housing than a policy that reacts only to deviations of expected inflation (CPI) from target. Some prudential regulation may provide a better outcome in terms of output and inflation variability.

Suggested Citation

  • Martha López Piñeros, 2006. "House Prices and Monetary Policy in Colombia," BORRADORES DE ECONOMIA 002794, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:002794
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    References listed on IDEAS

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    1. Aoki, Kosuke & James Proudman & Gertjan Vlieghe, 2003. "House prices, consumption, and monetary policy: a financial accelerator approach," Royal Economic Society Annual Conference 2003 7, Royal Economic Society.
    2. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, pages 1875-1911.
    3. Mauricio Cardenas & Alejandro Badel, 2003. "La crisis de financiamiento hipotecario en Colombia: Causas y consecuencias," Research Department Publications 4355, Inter-American Development Bank, Research Department.
    4. Leonardo Villar & Hernán Rincón, 2001. "Flujos De Capital Y Régimenes Cambiarios En La Década De Los 90," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 19(39), pages 5-71, June.
    5. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, pages 1875-1911.
    6. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
    7. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, pages 414-435.
    8. Bordo, Michael D & Jeanne, Olivier, 2002. "Monetary Policy and Asset Prices: Does 'Benign Neglect' Make Sense?," International Finance, Wiley Blackwell, vol. 5(2), pages 139-164, Summer.
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    11. Claudio Borio & William English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 1-59 Bank for International Settlements.
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    14. K.J. Martijn Cremers & Joost Driessen & Pascal Maenhout, 2008. "Explaining the Level of Credit Spreads: Option-Implied Jump Risk Premia in a Firm Value Model," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2209-2242, September.
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    17. Jack Selody & Carolyn Wilkins, 2004. "Asset Prices and Monetary Policy: A Canadian Perspective on the Issues," Bank of Canada Review, Bank of Canada, vol. 2004(Autumn), pages 3-14.
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    Cited by:

    1. Andrés Garcia & José Gomez, 2009. "Determinantes de las fusiones y adquisiciones en el sistema financiero colombiano. 1990-2007," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, May.
    2. Esteban Gómez & Sandra Rozo, 2008. "Beyond Bubbles: The Role of Asset Prices in Early-Warning Indicators," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 26(56), pages 114-148, June.
    3. Aquiles Arrieta Barcasnegras, 2012. "La relación entre los flujos de capital y el precio de la vivienda: el caso colombiano," REVISTA DE ECONOMÍA DEL CARIBE 010854, UNIVERSIDAD DEL NORTE.
    4. Weida Kuang & Peng Liu, 2015. "Inflation and House Prices: Theory and Evidence from 35 Major Cities in China," International Real Estate Review, Asian Real Estate Society, vol. 18(2), pages 217-240.
    5. Enrique López & Andrés Salamanca, 2009. "El efecto riqueza de la vivienda en Colombia," COYUNTURA ECONÓMICA, FEDESARROLLO, December.

    More about this item

    Keywords

    House price bubbles; interest rate rules; monetary policy; inflation;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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