Monetary Policy and the Housing Bubble

Posted: 16 Feb 2013

See all articles by John F. McDonald

John F. McDonald

University of Illinois at Chicago

Houston H. Stokes

University of Illinois at Chicago - Department of Economics

Date Written: February 15, 2013

Abstract

The causes of the housing bubble are investigated using Granger causality analysis and VAR modeling methods. The study employs the S&P/Case-Shiller aggregate 10 city monthly housing price index, available in the period 1987-2010/8, the 20 city monthly housing price index for 2000-2010/8, and the federal funds rate data for the period 1987-2010/8. The findings are consistent with the view that the interest rate policy of the Federal Reserve in the period 2001-2004 that pushed down the federal funds rate and kept it artificially low was a cause of the housing price bubble.

Keywords: housing bubble, Granger causality, impulse response function

Suggested Citation

McDonald, John F. and Stokes, Houston H., Monetary Policy and the Housing Bubble (February 15, 2013). Journal of Real Estate Finance and Economics, Vol. 46, No. 3, 2013, Available at SSRN: https://ssrn.com/abstract=2218543

John F. McDonald (Contact Author)

University of Illinois at Chicago ( email )

Chicago, IL 60605
United States
312-281-3287 (Phone)
312-281-3123 (Fax)

Houston H. Stokes

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States
312-996-2683 (Phone)
312-996-3344 (Fax)

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