House prices and monetary policy

Paulo Brito (), Giancarlo Marini and Alessandro Piergallini

Studies in Nonlinear Dynamics & Econometrics, 2016, vol. 20, issue 3, 251-277

Abstract: This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It demonstrates that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also proves that booms or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices.

Keywords: equilibrium dynamics; global determinacy; heteroclinic orbits; house prices; housing-wealth effects; monetary policy rules (search for similar items in EconPapers)
JEL-codes: C61 C62 E31 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Working Paper: House Prices and Monetary Policy (2016)
Working Paper: House Prices and Monetary Policy (2012)
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DOI: 10.1515/snde-2014-0072

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