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Effects of Conventional and Unconventional Monetary Policy Shocks on Housing Prices in the United States: The Role of Sentiment

Petre Caraiani (), Rangan Gupta (), Chi Lau () and Hardik Marfatia
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Petre Caraiani: Institute for Economic Forecasting, Romanian Academy, 050711, Bucharest - Romania, Casa Academiei, Calea 13 Septembrie nr.13, Sector 5
Chi Lau: Department of Accountancy, Finance and Economics, Huddersfield Business School, University of Huddersfield, Queensgate, Huddersfield, HD1 3DH, UK.

No 201953, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we use a Quantile Structural Vector Autoregressive (QSVAR) model, estimated over the quarterly period of 1975:Q3 to 2017:Q3, to analyze whether the impact of monetary policy shocks on real housing returns in the United States is contingent on the initial state of housing market sentiment. We find that contractionary monetary policy reduces real housing returns more strongly when the market is characterized by optimism rather than pessimism, with this effect being more pronounced under unconventional monetary policy decisions. Further robustness checks confirm our results. Our findings highlight the role in sentiments in driving the policy effectiveness and thus, have important implications for policy decisions.

Keywords: House price; Monetary policy; Housing sentiment; Quantile Structural Vector Autoregressive Model (search for similar items in EconPapers)
JEL-codes: C32 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2019-07
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