House Prices and the Stance of Monetary Policy
49 Pages Posted: 5 May 2008 Last revised: 6 Jul 2008
Date Written: April 2008
This paper estimates a Bayesian VAR for the US economy which includes a housing sector and addresses the following questions. Can developments in the housing sector be explained on the basis of developments in real and nominal GDP and interest rates? What are the effects of housing demand shocks on the economy? How does monetary policy affect the housing market? What are the implications of house price developments for the stance of monetary policy? Regarding the latter question, we implement a version of a Monetary Conditions Index (MCI) due to Céspedes et al. (2006).
Keywords: House prices, monetary conditions index, Bayesian VAR, monetary policy shock, conditional forecast.
JEL Classification: E3, E4
Suggested Citation: Suggested Citation