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Transitory interest-rate pegs under imperfect credibility

Alex Haberis (), Richard Harrison () and Matt Waldron ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Housing construction, measured by housing starts, leads GDP in a number of countries. Measured as residential investment, the lead is observed only in the US and Canada; elsewhere, residential investment is coincident. Variants of existing theory, however, predict housing construction lagging GDP. In all countries in the sample, nominal interest rates are low ahead of GDP peaks. Introducing fully-amortizing mortgages and an estimated process for nominal interest rates into a standard model aligns the theory with the observations on starts; one-period loans are insufficient to generate the lead. Longer time to build then makes residential investment cyclically coincident

Keywords: New Keynesian model; monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: E12 E17 E20 E30 E42 E52 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-07-31
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: Transitory interest-rate pegs under imperfect credibility (2014) Downloads
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