Monetary Policy and the Housing Bubble
Posted: 16 Feb 2013
Date Written: February 15, 2013
The causes of the housing bubble are investigated using Granger causality analysis and VAR modeling methods. The study employs the S&P/Case-Shiller aggregate 10 city monthly housing price index, available in the period 1987-2010/8, the 20 city monthly housing price index for 2000-2010/8, and the federal funds rate data for the period 1987-2010/8. The findings are consistent with the view that the interest rate policy of the Federal Reserve in the period 2001-2004 that pushed down the federal funds rate and kept it artificially low was a cause of the housing price bubble.
Keywords: housing bubble, Granger causality, impulse response function
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