Betting the House

Oscar Jorda, Moritz Schularick and Alan Taylor

No 5147, CESifo Working Paper Series from CESifo

Abstract: Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises. Both effects have become stronger in the postwar era.

Keywords: house prices; monetary policy; financial crises (search for similar items in EconPapers)
JEL-codes: E02 E42 N10 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Betting the house (2015)
Chapter: Betting the House (2014)
Working Paper: Betting the House (2014)
Working Paper: Betting the House (2014)
Working Paper: Betting the House (2014)
Working Paper: Betting the House (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5147

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