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Effects of Conventional and Unconventional Monetary Policy Shocks on Housing Prices in the United States: The Role of Sentiment

Author

Listed:
  • Petre Caraiani

    () (Institute for Economic Forecasting, Romanian Academy, 050711, Bucharest - Romania, Casa Academiei, Calea 13 Septembrie nr.13, Sector 5)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Chi Keung Marco Lau

    () (Department of Accountancy, Finance and Economics, Huddersfield Business School, University of Huddersfield, Queensgate, Huddersfield, HD1 3DH, UK.)

  • Hardik A. Marfatia

    () (Department of Economics, Northeastern Illinois University, BBH 344G, 5500 N. St. Louis Ave., Chicago, IL 60625, USA)

Abstract

In this paper, we use a Quantile Structural Vector Autoregressive (QSVAR) model, estimated over the quarterly period of 1975:Q3 to 2017:Q3, to analyze whether the impact of monetary policy shocks on real housing returns in the United States is contingent on the initial state of housing market sentiment. We find that contractionary monetary policy reduces real housing returns more strongly when the market is characterized by optimism rather than pessimism, with this effect being more pronounced under unconventional monetary policy decisions. Further robustness checks confirm our results. Our findings highlight the role in sentiments in driving the policy effectiveness and thus, have important implications for policy decisions.

Suggested Citation

  • Petre Caraiani & Rangan Gupta & Chi Keung Marco Lau & Hardik A. Marfatia, 2019. "Effects of Conventional and Unconventional Monetary Policy Shocks on Housing Prices in the United States: The Role of Sentiment," Working Papers 201953, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201953
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    House price; Monetary policy; Housing sentiment; Quantile Structural Vector Autoregressive Model;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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