Monetary Policy and the Global Housing Bubble

51 Pages Posted: 4 Apr 2011  

Jane Dokko

Board of Governors of the Federal Reserve System

Brian M. Doyle

Board of Governors of the Federal Reserve System

Michael T. Kiley

Board of Governors of the Federal Reserve - Macroeconomic and Quantitative Studies Section

Jinill Kim

Korea University

Shane M. Sherlund

Federal Reserve Board of Governors

Jae Sim

Board of Governors of the Federal Reserve System

Skander Van den Heuvel

Federal Reserve Board

Abstract

What caused the housing boom of the 2000s? A number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run-up in house prices in many countries. However, using a common statistical approach, we find that monetary policy was not the main factor. That should not be surprising: Although low interest rates raise house prices, the increase in prices during the mid-2000s was much larger than the historical relationship between the two variables would suggest. Instead, we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices. This link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom. Our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms.

Suggested Citation

Dokko, Jane and Doyle, Brian M. and Kiley, Michael T. and Kim, Jinill and Sherlund, Shane M. and Sim, Jae and Van den Heuvel, Skander, Monetary Policy and the Global Housing Bubble. Economic Policy, Vol. 26, No. 66, pp. 233-283, 2011. Available at SSRN: https://ssrn.com/abstract=1801026 or http://dx.doi.org/10.1111/j.1468-0327.2011.00262.x

Jane K. Dokko

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Brian M. Doyle

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-785-6011 (Phone)
202-263-4843 (Fax)

Michael T. Kiley

Board of Governors of the Federal Reserve - Macroeconomic and Quantitative Studies Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

Jinill Kim

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea

Shane M. Sherlund

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Mailstop 93
Washington, DC 20551
United States
202-452-3589 (Phone)
202-728-5887 (Fax)

Jae W. Sim

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Skander Van den Heuvel

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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