Monetary Policy Shocks and Local Housing Prices

Shihan Xie

International Journal of Central Banking, 2025, vol. 21, issue 3, 327-376

Abstract: This paper studies the channels by which monetary policy shocks affect local housing prices. It first documents there is a sluggish response of housing prices, suggesting that informational frictions may be potentially important. It then develops a structural model of housing prices with information frictions, and exploits variations in housing prices across metropolitan statistical areas to estimate it. The important finding is that although households are well-informed about local demand, they are ill-informed about how monetary policy affects the local housing market. A counterfactual experiment using the estimated model implies that deviations from the Taylor rule in the early 2000s contributed to about two-fifths of the subsequent housing boom.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2025:q:3:a:8

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