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Monetary Policy and the Housing Market: A Structural Factor Analysis

  • Matteo Luciani

This paper studies the role of the Federal Reserve’s policy in the recent boom and bustof the housing market, and in the ensuing recession. By estimating a Structural DynamicFactor model on a panel of 109 US quarterly variables from 1982 to 2010, we find that,although the Federal Reserve’s policy between 2002 and 2004 was slightly expansionary,its contribution to the recent housing cycle was negligible. We also show that a morerestrictive policy would have smoothed the cycle but not prevented the recession. Wethus find no role for the Federal Reserve in causing the recession.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/129931/1/2012-035-LUCIANI-monetary.pdf
File Function: 2012-035-LUCIANI-monetary
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2012-035.

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Length: 24 p.
Date of creation: Oct 2012
Date of revision:
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/129931
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Web page: http://difusion.ulb.ac.be

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  1. Mario Forni & Filippo Altissimo & Riccardo Cristadoro & Marco Lippi & Giovanni Veronese., 2008. "New Eurocoin: Tracking Economic Growth in Real Time," Center for Economic Research (RECent) 020, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  2. Forni, Mario & Gambetti, Luca, 2010. "The dynamic effects of monetary policy: A structural factor model approach," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 203-216, March.
  3. Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2007. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Center for Economic Research (RECent) 008, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  4. Vargas-Silva, Carlos, 2008. "Monetary policy and the US housing market: A VAR analysis imposing sign restrictions," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 977-990, September.
  5. Vladimir Klyuev & Paul S. Mills, 2006. "Is Housing Wealth An 'ATM'? the Relationship Between Household Wealth, Home Equity withdrawal, and Saving Rates," IMF Working Papers 06/162, International Monetary Fund.
  6. Marc Hallin & Mario Forni & Marco Lippi & Lucrezia Reichlin, 2003. "Do financial variables help forecasting inflation and real activity in the Euro area ?," ULB Institutional Repository 2013/2123, ULB -- Universite Libre de Bruxelles.
  7. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  8. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2003. "The Generalized Dynamic Factor Model. One-Sided Estimation and Forecasting," LEM Papers Series 2003/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  9. Francesco Lippi & Andrea Nobili, 2009. "Oil and the macroeconomy: a quantitative structural analysis," Temi di discussione (Economic working papers) 704, Bank of Italy, Economic Research and International Relations Area.
  10. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," Working Paper 94-2, Federal Reserve Bank of Atlanta.
  11. Galí, Jordi & Gambetti, Luca, 2008. "On the Sources of the Great Moderation," CEPR Discussion Papers 6632, C.E.P.R. Discussion Papers.
  12. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2004. "The generalised dynamic factor model: consistency and rates," ULB Institutional Repository 2013/10133, ULB -- Universite Libre de Bruxelles.
  13. Forni, Mario & Lippi, Marco, 2001. "The Generalized Dynamic Factor Model: Representation Theory," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1113-1141, December.
  14. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
  15. Alessandro Calza & Tommaso Monacelli & Livio Stracca, 2013. "Housing Finance And Monetary Policy," Journal of the European Economic Association, European Economic Association, vol. 11, pages 101-122, 01.
  16. Forni, Mario & Lippi, Marco & Reichlin, Lucrezia, 2003. "Opening the Black Box: Structural Factor Models versus Structural VARs," CEPR Discussion Papers 4133, C.E.P.R. Discussion Papers.
  17. Amengual, Dante & Watson, Mark W., 2007. "Consistent Estimation of the Number of Dynamic Factors in a Large N and T Panel," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 91-96, January.
  18. Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2007. "A Robust Criterion for Determining the Number of Static Factors in Approximate Factor Models," LEM Papers Series 2007/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  19. Carlos Vargas-Silva, 2008. "The effect of monetary policy on housing: a factor-augmented vector autoregression (FAVAR) approach," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 749-752.
  20. Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank, Research Centre.
  21. Hallin, Marc & Liska, Roman, 2007. "Determining the Number of Factors in the General Dynamic Factor Model," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 603-617, June.
  22. Giannone, Domenico & Reichlin, Lucrezia & Sala, Luca, 2002. "Tracking Greenspan: Systematic and Unsystematic Monetary Policy Revisited," CEPR Discussion Papers 3550, C.E.P.R. Discussion Papers.
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