Abstract
This paper revisits the link between house prices and monetary policy using a data set on house prices provided by the Bank for International Settlements. It is found that a loose monetary policy unambiguously results in a rise in real house prices, and such an increase is statistically significant for 19 of the 20 countries studied here. Empirical results also show that for some countries (Belgium, Canada, Switzerland, Denmark, the Netherlands, Sweden, and South Africa), the interest rate shock can explain a large percentage of real house price movements. The response of house prices to monetary policy shocks varies between countries, and the strength of the relationship between house prices and monetary policy can be associated with financial liberalization. On the other hand, evidence shows that interest rate shock plays an important role in explaining recent house price hikes for Australia, Spain, Ireland, the Netherlands, the US, and South Africa. In particular, during 2002–2006, on average 24% of the house price hikes in the US can be attributed to monetary policy shocks. Finally, we also find evidence that central banks react to the housing market, particularly in those countries adopting a policy of inflation targeting.
Acknowledgments
We would like to thank an anonymous referee for comments and suggestions on an earlier version of this paper. Any remaining errors are our own.
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Supplementary Material
The online version of this article offers supplementary material (https://doi.org/10.1515/bejm-2021-0099).
© 2021 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Frontmatter
- Advances
- Uncertainty, Financial Markets, and Monetary Policy over the Last Century
- Collateral Constraints, Wage Rigidity, and Jobless Recoveries
- Revisiting the Link between House Prices and Monetary Policy
- Front-Loading Agricultural Subsidies: Quantifying Public Savings
- Contributions
- Equilibrium Tax Rates under Ex-ante Heterogeneity and Income-dependent Voting
- Financial Reforms and Consumption Smoothing
- The Government in SNA-Compliant DSGE Models
- Accounting for the International Great Depression: Efficiency, Distortions and Factor Utilization during the Interwar Period
- Assessing the Role of Sentiment in the Propagation of Fiscal Stimulus
- Fiscal Decentralization and Fiscal Multiplier in China
- Effect of Feed-In Tariff with Deregulation on Directed Technical Change in the Energy Sector
- Pay-as-You-Go Social Security and Educational Subsidy in an Overlapping Generations Model with Endogenous Fertility and Endogenous Retirement
Articles in the same Issue
- Frontmatter
- Advances
- Uncertainty, Financial Markets, and Monetary Policy over the Last Century
- Collateral Constraints, Wage Rigidity, and Jobless Recoveries
- Revisiting the Link between House Prices and Monetary Policy
- Front-Loading Agricultural Subsidies: Quantifying Public Savings
- Contributions
- Equilibrium Tax Rates under Ex-ante Heterogeneity and Income-dependent Voting
- Financial Reforms and Consumption Smoothing
- The Government in SNA-Compliant DSGE Models
- Accounting for the International Great Depression: Efficiency, Distortions and Factor Utilization during the Interwar Period
- Assessing the Role of Sentiment in the Propagation of Fiscal Stimulus
- Fiscal Decentralization and Fiscal Multiplier in China
- Effect of Feed-In Tariff with Deregulation on Directed Technical Change in the Energy Sector
- Pay-as-You-Go Social Security and Educational Subsidy in an Overlapping Generations Model with Endogenous Fertility and Endogenous Retirement