The Dynamic Impact of Monetary Policy on Regional Housing Prices in the US: Evidence Based on Factor-augmented Vector Autoregressions

22 Pages Posted: 28 Feb 2018

See all articles by Manfred M. Fischer

Manfred M. Fischer

Vienna University of Economics and Business - Institute for Economic Geography and GIScience, Department of Socioeconomics

Florian Huber

University of Salzburg

Michael Pfarrhofer

University of Salzburg - Department of Economics and Social Sciences

Petra Staufer-Steinnocher

University of Vienna - Department of Economics

Date Written: February 18, 2018

Abstract

In this study interest centers on regional differences in the response of housing prices to monetary policy shocks in the US. We address this issue by analyzing monthly home price data for metropolitan regions using a factor-augmented vector autoregression (FAVAR) model. Bayesian model estimation is based on Gibbs sampling with Normal-Gamma shrinkage priors for the autoregressive coefficients and factor loadings, while monetary policy shocks are identified using high-frequency surprises around policy announcements as external instruments. The empirical results indicate that monetary policy actions typically have sizeable and significant positive effects on regional housing prices, revealing differences in magnitude and duration. The largest effects are observed in regions located in states on both the East and West Coasts, notably California, Arizona and Florida.

Keywords: Regional housing prices, metropolitan regions, Bayesian estimation

JEL Classification: C11, C32, E52, R31

Suggested Citation

Fischer, Manfred M. and Huber, Florian and Pfarrhofer, Michael and Staufer-Steinnocher, Petra, The Dynamic Impact of Monetary Policy on Regional Housing Prices in the US: Evidence Based on Factor-augmented Vector Autoregressions (February 18, 2018). Available at SSRN: https://ssrn.com/abstract=3124815 or http://dx.doi.org/10.2139/ssrn.3124815

Manfred M. Fischer (Contact Author)

Vienna University of Economics and Business - Institute for Economic Geography and GIScience, Department of Socioeconomics ( email )

Welthandelsplatz 1, D4
Vienna, 1020
Austria

Florian Huber

University of Salzburg ( email )

Akademiestra├če 26
Salzburg, Salzburg 5020
Austria

Michael Pfarrhofer

University of Salzburg - Department of Economics and Social Sciences ( email )

Residenzplatz 9
Salzburg, 5010
Austria

Petra Staufer-Steinnocher

University of Vienna - Department of Economics ( email )

Bruennerstrasse 72
Vienna, A-1210
Austria

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