Off Track Monetary Policy and Housing

15 Pages Posted: 10 Nov 2020

See all articles by Jaroslav Horvath

Jaroslav Horvath

University of New Hampshire

Fredj Jawadi

University of Lille

Philip Rothman

East Carolina University

Date Written: September 12, 2020


We find significant evidence of model mis-specification, in the form of neglected serial correlation, in the econometric model of the U.S. housing market used by Taylor (2007) in his critique of monetary policy following the 2001 recession. When we model that serial correlation, his model fails to replicate the historical paths of housing starts and house price inflation. Further modifications in the model allow us to capture both the housing boom and the bust. Our analysis suggests that a counterfactual monetary policy proposed by Taylor (2007) would not have averted the pre-financial crisis collapse in the housing market.

Keywords: Monetary Policy, Housing, Taylor Rule, Financial Crisis

JEL Classification: C22, E32, E52, G01

Suggested Citation

Horvath, Jaroslav and Jawadi, Fredj and Rothman, Philip, Off Track Monetary Policy and Housing (September 12, 2020). Available at SSRN: or

Jaroslav Horvath (Contact Author)

University of New Hampshire ( email )

Department of Economics
10 Garrison Avenue
Durham, NH 03824
United States
6038620867 (Phone)

HOME PAGE: http://

Fredj Jawadi

University of Lille

104 Avenue du Peuple Belge
Lille, Cedex 59043

Philip Rothman

East Carolina University ( email )

Dept of Economics
Brewster Building
Greenville, NC 27858
United States

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