How monetary policy shaped the housing boom

This article presents a comparative analysis of the determinants, sustenance and broader macroeconomic consequences of the ultimately unsustainable housing boom in Ireland and the UK in recent years. It examines, in particular, the role played by ostensibly depoliticised monetary policy in both contexts in the development of a house price bubble that has served to fuel consumer-led growth. It assesses the viability, sustainability and reproducibility of the private debt-financed consumer boom that house price inflation has generated. In the process it draws attention to the increasingly differentiated character of both government inflationary preferences and counter-inflationary performance—with the shift to official measures of inflation that exclude mortgage interest repayments and, in the UK at least, to the covert re-politicisation of monetary policy. It concludes by suggesting that governments may well not have time-inconsistent inflationary preferences so much as sectorally specific inflationary preferences. This might be summarised in terms of the aphorism: ‘retail price inflation bad, house price inflation good’.

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British Monetary Policy and the Housing Boom

The Quarterly Journal of Economics ◽

10.2307/1881702 ◽

1941 ◽

Vol 56 (1) ◽

pp. i

Keyword(s):

Monetary Policy ◽

Housing Boom

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Monetary Policy, Capital Inflows and the Housing Boom

SSRN Electronic Journal ◽

10.2139/ssrn.1719045 ◽

2010 ◽

Cited By ~ 3

Author(s):

Filipa G. Sa ◽

Tomasz Wieladek

Keyword(s):

Monetary Policy ◽

Capital Inflows ◽

Housing Boom

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The Effects of Monetary Policy on House Prices in Spain: the role of the economic and monetary union membership in the housing bubble prior to the great recession

The Central European Review of Economics and Management ◽

10.29015/cerem.540 ◽

2018 ◽

Vol 2 (2) ◽

pp. 5

Author(s):

Tibor Pál

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Interest Rates ◽

House Prices ◽

Monetary Transmission ◽

Interest Rate Policy ◽

Housing Boom ◽

Rate Policy ◽

The Impact

Aim: This paper aims to discover the evolution of monetary transmission in Spain by focusing on the short-term interest rate, credit aggregates and house prices through different stages of economic development and European integration between 1975 and 2008. In addition, the analysis devotes special attention to the interval of the last housing boom, in order to reveal the importance of the interest rate policy of the ECB.Design / Research methods: The study applies a tri-variate autoregressive model assigned to three overlapping periods outlined by regime shifts in the Spanish economy. The estimation output determines the strength and persistency of the links between interest rates, credit aggregates and house prices. Consequently, the results of the econometric analysis provide proper base for comparison in order to identify the dominating channels of monetary transmissions through a prolonged period.Conclusions / findings: It is found that the transmission mechanism in Spain essentially altered over time since 1975. At the beginning of the full analysed interval the role of the credit channel was dominant, then its importance gradually diminished. After the EMU accession the traditional interest rate channel became the leading factor with an intensified and more persistent effect on house prices.Originality / value of the article: While there are numerous researches aimed at estimating the impact of monetary policy on the real economy, empirical studies focusing exclusively on the link between interest rate policy and house prices in Spain are still rare. As the present paper concentrates solely on the Spanish characteristics through extended interval, the study provides country-specific inferences.Implications of the research: Understanding the mechanism of the monetary policy effects on the housing sector is an essential aspect of designing policy interventions aimed at keeping house price development in check.Limitations of the research: Despite the significant results of the empirical analysis, the excessively dynamic increase in the property prices suggests that the factor of irrational expectations also played important role in the latest Spanish housing bubble.Key words: Monetary policy, VAR, ECB, Housing boom, Monetary transmission mechanismJEL: E52, E58.

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