Asymmetric effects of monetary policy in regional housing markets

Knut Are Aastveit and Andre Anundsen ()

No 2018/08, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: The responsiveness of house prices to monetary policy shocks depends on the nature of the shock – expansionary versus contractionary – and on local housing supply elasticities. These findings are established based on a panel of 263 US metropolitan areas. We test and find supporting evidence for the hypothesis that expansionary monetary policy shocks have a larger impact on house prices when supply elasticities are low. Our results also suggest that contractionary shocks are orthogonal to supply elasticities, as implied by downward rigidity of housing supply. A standard theoretical conjecture is that contractionary shocks have a greater impact on house prices than expansionary shocks, as long as supply is not perfectly inelastic. For areas with high housing supply elasticity, our results are in line with this conjecture. However, for areas with an inelastic housing supply, we find that expansionary shocks have a greater impact on house prices than contractionary shocks. We provide evidence that the direction of the asymmetry is related to a momentum effect that is more pronounced when house prices are increasing than when they are falling.

Keywords: House prices; Heterogeneity; Monetary policy; Non-linearity; Supply elasticities (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 R21 R31 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2018
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 (4)

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Related works:
Journal Article: Asymmetric Effects of Monetary Policy in Regional Housing Markets (2022)
Working Paper: Asymmetric effects of monetary policy in regional housing markets (2017)
Working Paper: Asymmetric effects of monetary policy in regional housing markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2018-08

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