The role of house prices in the monetary policy transmission mechanism in small open economies

Hilde Bjørnland () and Dag Henning Jacobsen
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Dag Henning Jacobsen: Norges Bank (Central Bank of Norway)

No 2009/06, Working Paper from Norges Bank

Abstract: We analyse the role of house prices in the monetary policy transmission mechanism in Norway, Sweden and the UK using structural VARs. A solution is proposed to the endogeneity problem of identifying shocks to interest rates and house prices by using a combination of short-run and long-run (neutrality) restrictions. By allowing the interest rate and house prices to react simultaneously to news, we find the role of house prices in the monetary transmission mechanism to increase considerably. In particular, house prices react immediately and strongly to a monetary policy shock. Furthermore, the fall in house prices seem to enhance the negative response in output and consumer price inflation that has traditionally been found in the conventional literature. Moreover, we find that the interest rate respond systematically to a change in house prices.

Keywords: VAR; monetary policy; house prices; identification (search for similar items in EconPapers)
JEL-codes: C32 E52 F31 F41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009-04-27
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The role of house prices in the monetary policy transmission mechanism in small open economies (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2009_06

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