House Prices and the Stance of Monetary Policy

Jarocinski, Marek; Smets, Frank

doi:10.2139/ssrn.1120167

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House Prices and the Stance of Monetary Policy

ECB Working Paper No. 891

49 Pages Posted: 5 May 2008 Last revised: 6 Jul 2008

See all articles by Marek Jarocinski

Frank Smets

Ghent University - Department of General Economics; Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: April 2008

Abstract

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

Jarocinski, Marek and Smets, Frank, House Prices and the Stance of Monetary Policy (April 2008). ECB Working Paper No. 891, Available at SSRN: https://ssrn.com/abstract=1120167 or http://dx.doi.org/10.2139/ssrn.1120167