The Dynamic Impact of Monetary Policy on Regional Housing Prices in the United States
Author: Manfred M. Fischer
Publisher:
Published: 2018
Total Pages:
ISBN-13:
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The Dynamic Impact of Monetary Policy on Regional Housing Prices in the US
Author: Manfred M. Fischer
Publisher:
Published: 2018
Total Pages: 22
ISBN-13:
DOWNLOAD EBOOKIn this study interest centers on regional differences in the response of housing prices to monetary policy shocks in the US. We address this issue by analyzing monthly home price data for metropolitan regions using a factor-augmented vector autoregression (FAVAR) model. Bayesian model estimation is based on Gibbs sampling with Normal-Gamma shrinkage priors for the autoregressive coefficients and factor loadings, while monetary policy shocks are identified using high-frequency surprises around policy announcements as external instruments. The empirical results indicate that monetary policy actions typically have sizeable and significant positive effects on regional housing prices, revealing differences in magnitude and duration. The largest effects are observed in regions located in states on both the East and West Coasts, notably California, Arizona and Florida.
The Housing Supply Channel of Monetary Policy
Author: Bruno Albuquerque
Publisher: International Monetary Fund
Published: 2024-02-02
Total Pages: 60
ISBN-13:
DOWNLOAD EBOOKWe study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates.
Monetary Policy and Regional House-Price Appreciation
Author: Daniel Cooper
Publisher:
Published: 2016
Total Pages: 47
ISBN-13:
DOWNLOAD EBOOKThis paper examines the link between monetary policy and house-price appreciation by exploiting the fact that monetary policy is set at the national level, but has different effects on state-level activity in the United States. This differential impact of monetary policy provides an exogenous source of variation that can be used to assess the effect of monetary policy on state-level housing prices. Policy accommodation equivalent to 100 basis points on an equilibrium real federal funds rate basis raises housing prices by about 2.5 percent over the next two years. However, the estimated effect increases to 6.6 percent during the early 2000s housing boom.
The Effects of Housing Prices and Monetary Policy in a Currency Union
Author: Oriol Aspachs-Bracons
Publisher: International Monetary Fund
Published: 2011-01-01
Total Pages: 54
ISBN-13: 1455211842
DOWNLOAD EBOOKThe recent boom-and-bust cycle in housing prices has refreshed the debate on the drivers of housing cycles as well as the appropriate policy response. We analyze the case of Spain, where housing prices have soared since it joined the EMU. We present evidence based on a VAR model, and we calibrate a New Keynesian model of a currency area with durable goods to explain it. We find that labor market rigidities provide stronger amplification effects to all type of shocks than financial frictions do. Finally, we show that when the central bank reacts to house prices, the non-durable sector suffers an important contraction. As a result, the boom-and-bust cycle would not have been avoided if Spain had remained outside the EMU during the 1996-2007 period.
Monetary Policy, Housing Investment, and Heterogeneous Regional Markets
Author: Michael C. Fratantoni
Publisher:
Published: 2015
Total Pages: 48
ISBN-13:
DOWNLOAD EBOOKThis paper quantifies the importance of heterogeneity in regional housing markets for the conduct of monetary policy using a new model called an aggregation VAR (AVAR). The model integrates a national financial market with regional housing markets, imposing all exact aggregation conditions. Monetary policy is transmitted to the real economy through the mortgage rate. The AVAR model is based on linear VARs, but its aggregate impulse responses exhibit two nonlinearities: (1) time variation stemming from aggregation over heterogeneous regions, and (2) state dependence on initial economic conditions in regions. Thus, the effect of monetary policy on the real economy depends on the extent and nature of regional heterogeneity, which vary over time. Using longitudinal data for detailed U.S. regions, we estimate the effects of time variation and state dependence on the dynamic responses of the AVAR model. These estimates, and aggregation bias, provide plausible and tangible explanations for quot;long and variablequot; lags in monetary policy. As an example, we show how the AVAR model can simulate the effects of coastal housing booms on the efficacy of monetary policy.
The Dynamic Impact of Macroeconomic Aggregates on Housing Prices and Stock of Houses
Author: John Baffoe-Bonnie
Publisher:
Published: 2001
Total Pages:
ISBN-13:
DOWNLOAD EBOOKThis paper analyzes the dynamic effects of four key macroeconomic variables on the housing prices and the stock of houses sold on the national and regional levels using a non-structural estimation technique. The impulse response functions derived from the VAR suggest that macroeconomic variables produce cycles in housing prices and houses sold. The housing market was found to be very sensitive to shocks in the employment growth and mortgage rate at both the national and regional levels. In particular, regional housing prices reflect regional employment growth, as well as national mortgage rates. The study also reveals that the economic variables have a different impact on the dynamic behavior of housing prices and the number of houses sold in different regions at different time periods and that these economic aggregates alone cannot explain the fluctuations in real estate values and construction levels that occurred in some regions.
Monetary Policy, Housing Investment, and Heterogenous Regional Markets
Author: Michael Fratantoni
Publisher:
Published: 2000
Total Pages: 60
ISBN-13:
DOWNLOAD EBOOKMonetary Policy and Housing Prices in an Estimated DSGE for the US and the Euro Area
Author: Matthieu Darracq Paries
Publisher:
Published: 2009
Total Pages: 69
ISBN-13:
DOWNLOAD EBOOKWe estimate a two-country Dynamic Stochastic General Equilibrium model for the US and the euro area including relevant housing market features and examine the monetary policy implications of housing-related disturbances. In particular, we derive the optimal monetary policy cooperation consistent with the structural specification of the model. Our estimation results reinforce the existing evidence on the role of housing and mortgage markets for the US and provide new evidence on the importance of the collateral channel in the euro area. Moreover, we document the various implications of credit frictions for the propagation of macroeconomic disturbances and the conduct of monetary policy. We find that allowing for some degree of monetary policy response to fluctuations in the price of residential goods improves the empirical fit of the model and is consistent with the main features of optimal monetary policy response to housing-related shocks.
Real Estate Price Inflation, Monetary Policy, and Expectations in the United States and Japan
Author: Mr.Garry J. Schinasi
Publisher: International Monetary Fund
Published: 1994-01-01
Total Pages: 50
ISBN-13: 1451925557
DOWNLOAD EBOOKDuring the mid- to late 1980s, inflationary pressures were highly concentrated in asset markets in many industrial countries. This paper discusses why this may have occurred and then develops a forward-looking supply and demand model of the real estate market in which equilibrium prices depend on price expectations, monetary conditions, income, returns to alternative assets, and construction costs. In this model, the current equilibrium price is determined by expectations formed in different time periods by consumers and producers. The model and its more generalized dynamic specifications are estimated by maximum-likelihood methods. The empirical results do not reject the view that the relationship between real estate values and monetary policy was altered in 1980s.
