Monetary Policy, the Housing Market, and the 2008 Recession: A Structural Factor Analysis

Matteo Luciani

No 7, Working Papers from Doctoral School of Economics, Sapienza University of Rome

Abstract: DThis paper estimates a Structural Dynamic Factor Model on a panel of 102 US quarterly series. We model economic comovements by means of 5 underlying structural shocks (oil price, productivity, aggregate demand, monetary policy, and housing demand). The results of the benchmark model (impulse responses and variance decompositions) are in line with those predicted by economic theory and usually estimated by the empirical literature. We show that while over the whole sample the contribution of the housing demand shock is negligible, after the early eighties' liberalizations in housing finance, the housing demand shock has become a substantial source of business cycle fluctuations. The model is then used to analyze the causes of the 2008 recession: results indicate that we cannot exclude that monetary policy played a non negligible role in leading the way for the downturn in residential investment and the ensuing recession.\\ JEL Classification: C32, E32, E52, R2

Keywords: Structural Factor Model; Business Cycle; Monetary Policy; Housing.; Structural Factor Model; Business Cycle; Monetary Policy; Housing (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 R2 (search for similar items in EconPapers)
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
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Citations: View citations in EconPapers (1)

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