Did monetary policy fuel the housing bubble? An application to Ireland

Moons, Cindy; Hellinckx, Kevin

doi:10.1016/j.jpolmod.2019.03.006

Cited by 9 publications

(2 citation statements)

References 37 publications

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“…Overall, the empirical results of this study have verified that interest rate variation affects home price behavior, and home prices tend to fall into disequilibrium or correct themselves anytime in the housing market when the economic environment involves a substantial decrease in interest rates. Previous studies have reported that interest rates affect housing prices (Fischer et al, 2019;Hanck & Prüser, 2020;Valadkhani et al, 2019) and result in housing bubbles (Jordà et al, 2015;Moons & Hellinckx, 2019). Other studies have identified that money supply affects housing prices (Su et al, 2019;Yin et al, 2020) and bubbles (Tsai, 2015b;Huang & Shen, 2017).…”

Section: Home Price Behaviormentioning

confidence: 98%

The Special Effect of Interest Rate Cuts on Housing Prices

Lin

Tsai

2021

Journal of Business Economics and Management

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This study uses theoretical models and empirical research to explain that interest rates affect the structure of housing price formation and correction rather than affect the price alone. In particular, when interest rates are substantially reduced, the correction of housing prices toward fundamentals is absent; in other words, a housing bubble is likely to occur. This study first illustrates a model for explaining home price behavior. Data from the Case-Shiller U.S. National Home Price Index between January 1975 and August 2020 are adopted to observe the behavior of home prices. The empirical results show that the correction and bubble behavior of U.S. home prices have exhibited significant structural changes. Variation in money supply fails to explain the structural changes, however, interest rate variation can significantly affect the structural changes. According to the results, when interest rates rise or fall slightly, the correction of home prices toward the equilibrium value is significant. However, when interest rates fall substantially, the bubble behavior of home prices is significant. For governments that adopt low interest rates to revitalize the economy, the results of this study provide special reference values. Governments should provide additional intervention in housing markets when an extremely low interest rate exists.

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Section: Home Price Behaviormentioning

confidence: 98%

The Special Effect of Interest Rate Cuts on Housing Prices

Lin

Tsai

2021

Journal of Business Economics and Management

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“…According to Drechsler et al (2021) the impact of monetary policy on the housing sector will result in housing boom due to rising interest rates and the expansion of mortgage loans. On the other hand, Moons and Hellinckx (2019) argued that monetary policy that is adapted to each country's needs may promote housing by preventing a major rise in housing prices. In contrast, according to Lambertini et al (2013), there is no trade-off between traditional monetary policy goals and the desire for boom-and-bust cycles.…”

Section: Effects Of Governmental Regulations On Housing Cyclesmentioning

confidence: 99%

Investigating the government’s role in the boom-and-bust cycles of the housing market

Meshkini,

Nejati,

Alipour

2024

J. Infras. Policy. Dev.

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Governments intervene in the housing market via implementing various monetary, fiscal, foreign exchange and credit policies. By this, the housing market undergoes cycles of boom and bust as well as significant swings in value added and housing prices. Therefore, the main goal of this research is to consider the effect of the government’s change on the monetary and financial policy’s impact on the business cycles of the housing sector during the period of 1978–2020. On the other hand, we estimate the impact of monetary and fiscal policies on housing business cycles concerning government’s change. To calculate housing business cycles (boom and busts), the housing value added were initially de-trended using the Hodrick–Prescott filter. This paper takes a novel use of the threshold regression model with government’s change as threshold variable. According to the study’s findings, there are three threshold effects (two threshold levels or three regimes) of monetary and fiscal policy on housing business cycles. For instance, the money supply coefficient in the first regime was −1.68, indicating that the effect of monetary policy in this regime is countercyclical. in the second and third regimes, it was 0.19 and 0.03, respectively; indicating its alignment with the housing business cycle. Regarding the estimated models, we may derive several interesting conclusions. In first regime, the money supply is countercyclical and government expenditure is pro-cyclical. This means that monetary policy exacerbates recession and fiscal policy weakens it. in the second and third regimes, the money supply is pro-cyclical and government expenditure is countercyclical. As a result, while formulating their monetary policies, governments should give the housing sector more consideration. Additionally, when putting this policy into practice, the housing sector has to be carefully examined.

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The applicability of the speculative frame method for detecting disturbances on the real estate market: evidence from Poland

Brzezicka

Wiśniewski²

2022

J Hous and the Built Environ

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Did monetary policy fuel the housing bubble? An application to Ireland

Cited by 9 publications

References 37 publications

The Special Effect of Interest Rate Cuts on Housing Prices

The Special Effect of Interest Rate Cuts on Housing Prices

Investigating the government’s role in the boom-and-bust cycles of the housing market

The applicability of the speculative frame method for detecting disturbances on the real estate market: evidence from Poland

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