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Monetary policy and housing prices

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  • Kerttula, Anne
  • Mikkola, Anne

Abstract

In this paper we study the determination of housing prices. We are particularly interested in how monetary policy affects housing prices. First we derived the explanatory variables for housing prices from the utility maximisation framework. In this setting housing prices are determined by income, wealth, the user cost of housing, the demographic factor, and the supply of housing. In addition, our survey of the theoretical literature indicates that monetary policy affects housing prices through the user cost as well as through the liquidity of the households and through the changes in the valuation of alternative assets. In the empirical part of the paper we ran regressions on data from the Helsinki area. Quarterly data from years 1973 -87 was used. Interest rate was found to be a significant explanatory variable in determining housing priees. Also net migration into Helsinki area and taxable wealth turned out to be of equal importance.

Suggested Citation

  • Kerttula, Anne & Mikkola, Anne, 1988. "Monetary policy and housing prices," Bank of Finland Research Discussion Papers 15/1988, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1988_015
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    References listed on IDEAS

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    1. Kearl, J R & Mishkin, Frederic S, 1977. "Illiquidity, the Demand for Residential Housing, and Monetary Policy," Journal of Finance, American Finance Association, vol. 32(5), pages 1571-1586, December.
    2. Broadberry, Stephen N, 1987. "Cheap Money and the Housing Boom in Interwar Britain: An Econometric Appraisal," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(4), pages 378-391, December.
    3. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    4. Åkerholm, Johnny, 1988. "External adjustment in small open economies : Some recent experience," Research Discussion Papers 6/1988, Bank of Finland.
    5. Manchester, Joyce, 1987. "Mortgage contracts in a general equilibrium model when there are inflation shocks," Journal of Macroeconomics, Elsevier, vol. 9(3), pages 327-349.
    6. Schwab, Robert M, 1982. "Inflation Expectations and the Demand for Housing," American Economic Review, American Economic Association, vol. 72(1), pages 143-153, March.
    Full references (including those not matched with items on IDEAS)

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