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Interest rates and house prices in the United States and around the world

Gregory Sutton, Dubravko Mihaljek () and Agnė Subelytė

No 665, BIS Working Papers from Bank for International Settlements

Abstract: This paper estimates the response of house prices to changes in short- and long-term interest rates in 47 advanced and emerging market economies. We use data that statistical authorities selected as their best house price series, covering almost half a century of quarterly observations for the United States and over 1,000 annual observations for the rest of the sample. We find a surprisingly important role for short-term interest rates as a driver of house prices, especially outside the United States. Our interpretation is that this reflects the importance of the bank lending channel of monetary policy in house price fluctuations, especially in countries where securitisation of home mortgages is less prevalent. In addition, we document substantial inertia in house prices and find that changes in interest rates and other determinants affect house prices gradually rather than on impact. This suggests that modest cuts in policy rates are not likely to rapidly fuel house price increases. Finally, we find that US interest rates seem to affect house prices outside the United States.

Keywords: interest rates; house prices; monetary policy; bank lending channel; random walk; house price bubble; United States; advanced economies; emerging market economies (search for similar items in EconPapers)
JEL-codes: E39 E43 E58 G12 R31 R32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac, nep-mon and nep-ure
Date: 2017-10
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