Open Conference Systems, ICQQMEAS2015

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Housing Bubble and Monetary Policy in U.S.
Thanassis Kazanas, Dimitrios Kallivokas

Last modified: 2015-09-24


This paper reviews the evidence of the link between monetary policy and the rapid rise in house prices that occurred in the early part of the last decade. A crucial point is the distinction between trend and cyclical movements in the housing market. Given that monetary policy have little impact on the economy over long-run, a large part of the run-up in house prices may be attributed to the slow but steady rise in the price of housing relative to that of other consumption goods. Moreover, the paper examines whether the conduct of monetary policy was appropriate through the estimation of simple monetary policy rules for the period from 1991:I to 2008:IV. Although the most rapid increases in house prices occurred when the short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be explained by the conduct of monetary policy alone. The shifts in preferences away from consumption goods towards housing goods as well as the weak financial supervision seem to play an important role in this housing bubble

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