Monetary policy and housing prices in an estimated DSGE for the US and the euro area

Matthieu Darracq Paries and Alessandro Notarpietro

No 972, Working Paper Series from European Central Bank

Abstract: We estimate a two-country Dynamic Stochastic General Equilibrium model for the US and the euro area including relevant housing market features and examine the monetary policy implications of housing-related disturbances. In particular, we derive the optimal monetary policy cooperation consistent with the structural specification of the model. Our estimation results reinforce the existing evidence on the role of housing and mortgage markets for the US and provide new evidence on the importance of the collateral channel in the euro area. Moreover, we document the various implications of credit frictions for the propagation of macroeconomic disturbances and the conduct of monetary policy. We find that allowing for some degree of monetary policy response to fluctuations in the price of residential goods improves the empirical fit of the model and is consistent with the main features of optimal monetary policy response to housing-related shocks. JEL Classification: E4, E5, F4

Keywords: bayesian estimation; credit frictions; housing; new open economy macroeconomics; optimal monetary policy (search for similar items in EconPapers)
Date: 2008-11
Note: 604093
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2008972

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