Monetary Policy and Housing Sector Dynamics in a Large-Scale Bayesian Vector Autoregressive Model
International Journal of Strategic Property Management, April 2012
25 Pages Posted: 30 Jun 2009 Last revised: 4 Feb 2013
Date Written: June 24, 2009
Our paper considers this channel whereby monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector. The analysis uses impulse response functions obtained from a large-scale Bayesian Vector Autoregression (LBVAR) model that incorporates 143 monthly macroeconomic variables over the period of 1986:01 to 2003:12, including 21 variables relating to the housing sector at the national and four census regions. We find at the national level that housing starts, housing permits, and housing sales fall in response to the tightening of monetary policy. Housing sales reacts more quickly and sharply than starts and permits and exhibits more duration. Housing prices show the weakest response to the monetary policy shock. At the regional level, we conclude that the housing sector in the South drives the national data. The responses in the West differ the most from the other regions, especially for the impulse responses of housing starts and permits.
Keywords: monetary policy, housing sector dynamics, large-scale BVAR models
JEL Classification: C32, R31
Suggested Citation: Suggested Citation