Interest Rate Elasticity of Residential Housing Prices
34 Pages Posted: 18 Dec 2008
Date Written: October 2008
We examine the interest rate elasticity of housing prices, advancingthe empirical literature in two directions. First, we take a commonly used cross-country panel dataset and evaluate the housing price equation using a consistent estimator in the presence of endogenous explanatory variables and a lagged dependent variable. Second, we carry-out a novel analysis of determinants of residential housing prices in a cross-section of countries. Our results show that the short-term interest rate, and hence monetary policy, has a sizable impact on residential housing prices.
Keywords: Housing prices, Real estate prices, Interest rate policy, Economic models
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