Asymmetric Effects of Monetary Policy in Regional Housing Markets

49 Pages Posted: 23 Feb 2018

See all articles by Knut Are Aastveit

Knut Are Aastveit

University of Oslo - Department of Economics

André K. Anundsen

University of Oslo; Norges Bank

Date Written: December 19, 2017

Abstract

The responsiveness of house prices to monetary policy shocks depends both on the nature of the shock – expansionary versus contractionary – and on city-specific housing supply elasticities. We test and find supporting evidence for the hypothesis that expansionary monetary policy shocks have a larger impact on house prices when supply elasticities are low on 263 US metropolitan areas. We also test whether contractionary shocks are orthogonal to supply elasticities, as implied by downward rigidity of housing supply, and find supporting evidence. A final theoretical conjecture is that contractionary shocks should have a greater impact on house prices than expansionary shocks, as long as supply is not perfectly inelastic. For areas with high housing supply elasticity, our results are in line with this conjecture. However, for areas with an inelastic housing supply, we find that expansionary shocks have a greater impact on house prices than contractionary shocks. We provide evidence that this is related to a momentum effect that is more pronounced when house prices are increasing than when they are falling.

Keywords: House prices, Heterogeneity, Monetary policy, Non-linearity, Supply elasticities

JEL Classification: E32, E43, E52, R21, R31

Suggested Citation

Aastveit, Knut Are and Anundsen, Andre Kallak, Asymmetric Effects of Monetary Policy in Regional Housing Markets (December 19, 2017). Norges Bank Working Paper 25/2017, ISBN: 978-82-8379-018-4. Available at SSRN: https://ssrn.com/abstract=3128243 or http://dx.doi.org/10.2139/ssrn.3128243

Knut Are Aastveit (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Andre Kallak Anundsen

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, 0130
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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