Financial market liberalization, monetary policy and housing price dynamics

Show simple item record Miller, Stephen M. Van Wyk, Dylan
dc.contributor.upauthor Gupta, Rangan 2010-04-15T09:14:01Z 2010-04-15T09:14:01Z 2010-03
dc.description.abstract This paper considers how monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector and whether the financial market liberalization of the early 1980’s influenced those dynamics. The analysis uses impulse response functions obtained from a large-scale Bayesian Vector Autoregression (LBVAR) model over the periods 1968:01 to 1982:12 and 1989:01 to 2003:12, including 21 housing-sector variables at the national and four census regions. Overall, the 100 basis point Federal funds rate shock produces larger effects on the real house prices, both at the regional level and the national level, in the post-liberalization period when compared to the pre-liberalization era. While the precision of the estimates do not imply significant differences, the finding does offer a caution. That is, the housing market appears more sensitive to monetary policy shocks in the post-liberalization period. On the one hand, this suggests that monetary policy possesses increased leverage. On the other hand, the housing market cycle traditionally contributes an important component to the aggregate business cycle. Thus, the monetary authorities may need to exercise more care in implementing Federal funds rate adjustments going forward. In addition, contractionary monetary policy exerts a negative effect on house prices at the national level, indicating the absence of the price puzzle in small structural vector autoregressive models. The puzzle’s absence in the housing sector possibly emerges as a result of proper identification of monetary policy shocks within a data-rich environment. Finally, we find that the reaction of housing sector proves heterogeneous across regions, with the housing sector in the South driving the national data after liberalization, while before liberalization, the Middle West appears to drive the housing market. The responses in the West differ the most from the other regions. en
dc.identifier.citation Gupta, R, Miller, SM & Van Wyk, D 2010, 'Financial market liberalization, monetary policy and housing price dynamics', University of Pretoria, Department of Economics, Working paper series, no. 2010-09. [] en_US
dc.language.iso en en_US
dc.publisher University of Pretoria, Department of Economics en_US
dc.relation.ispartofseries Working Paper (University of Pretoria, Department of Economics) en_US
dc.relation.ispartofseries 2010-09 en_US
dc.rights University of Pretoria, Department of Economics en_US
dc.subject Housing sector dynamics en
dc.subject Large-scale Bayesian Vector Autoregression (LBVAR) models en
dc.subject Financial market liberalization en
dc.subject.lcsh Housing -- Prices en
dc.subject.lcsh Monetary policy en
dc.title Financial market liberalization, monetary policy and housing price dynamics en
dc.type Working Paper en

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