EconPapers    
Economics at your fingertips  
 

Monetary policy and house prices: a cross-country study

John Ammer, Robert Martin (), Brian Doyle (), Linda S. Kole and Alan Ahearne ()
Additional contact information
John Ammer: Federal Reserve Bank of New York

No 841, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines periods of pronounced rises and falls of real house prices since 1970 in eighteen major industrial countries, with particular focus on the lessons for monetary policy. We find that real house prices are pro-cyclical?co-moving with real GDP, consumption, investment, CPI inflation, budget and current account balances, and output gaps. House price booms are typically preceded by a period of easing monetary policy, but then diminishing slack and rising inflation lead monetary authorities to begin tightening policy before house prices peak. In a careful reading of official reports, speeches, and minutes, we find little evidence that foreign central banks have reacted to past episodes of rising real house prices beyond taking into account their implications for inflation and output growth. However, central bankers have expressed a range of opinions in the more recent policy debate with some willing in certain cases to raise policy rates to try to stem current and future surges in asset prices while others favor moral suasion or a hands-off approach. Finally, we characterize the risks associated with house-price reversals. Although mortgage lenders in some countries have significant exposure to house prices, the balance of evidence suggests that this exposure does not, in and of itself, pose a significant risk to financial stability. Nevertheless, the co-movement of both property prices and default rates with the business cycle means that losses on mortgage lending are likely to be higher when banks? other lines of business are also performing poorly.

Keywords: Housing - Prices; Monetary policy (search for similar items in EconPapers)
Date: 2005, Revised 2005
New Economics Papers: this item is included in nep-mac, nep-mon, nep-sea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2005/841/ifdp841.pdf (application/pdf)
http://www.federalreserve.gov/pubs/ifdp/2005/841/default.htm (text/html)

Related works:
Working Paper: Monetary Policy and House Prices: A Cross-Country Study (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:841

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2020-02-21
Handle: RePEc:fip:fedgif:841