THE EFFECT OF MONETARY POLICY ON HOUSE PRICE INFLATION: A FACTOR AUGMENTED VECTOR AUTOREGRESSION (FAVAR) APPROACH

Rangan Gupta () and Alain Kabundi ()

No 200903, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper assesses the impact of monetary policy on house price inflation for the nine census divisions of the US economy using a factor-augmented VAR (FAVAR), estimated a large data set comprising of 126 quarterly series over the period 1976:01 to 2005:02. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the census divisions. In addition, our findings suggests the importance of South Atlantic, East South Central, West South Central, Mountain and the Pacific divisions, in particular, in shaping the dynamics of US house price inflation.

Keywords: Monetary Policy; House Price Inflation; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E52 R2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2009-01
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Persistent link: http://EconPapers.repec.org/RePEc:pre:wpaper:200903

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