Monetary Policy and the Housing Market: A Structural Factor Analysis
Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 7
39 Pages Posted: 21 Oct 2010
Date Written: September 7, 2010
This paper estimates a Structural Dynamic Factor Model on a panel of 102 US quarterly series. We model economic comovements by means of five underlying structural shocks (oil price, productivity, aggregate demand, monetary policy, and housing demand). The results of the benchmark model (impulse responses and variance decomposition) are in line with those predicted by economic theory and estimated in the empirical literature. We show that after the reforms to the housing finance sector starting in the early 1980s, housing demand shocks account for a slightly higher portion of model variability, while the role of monetary policy in determining residential investment fluctuations is slightly decreased. The model analyzes the sources of the fluctuations in the first decade of the 2000: we find that monetary policy shocks contributed to both the boom and bust in housing.
Keywords: Structural Factor Model, Business Cycle, Monetary Policy, Housing
JEL Classification: C32, E32, E52, R2
Suggested Citation: Suggested Citation