Do Central Banks React to House Prices?

Abstract

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Has the Fed Responded to House and Stock Prices? A Time-Varying Analysis

“…As far as we know, only one study provides estimates of the monetary policy response to house prices: Finocchiaro and von Heideken (2013) estimate a DSGE model with nominal loans and collateral constraints in which they embed a monetary policy rule with a direct response to house prices. The mean of their estimated coefficient for the US is 0.36 which, once adjusted for the estimated degree of interest rate smoothing (0.71 in their case), corresponds to the average response over our sample period.…”

“…A noteworthy exception is Finocchiaro and von Heideken (2013) who estimate the house price coefficient in a monetary policy rule and find evidence of a positive and significant response in the US in the context of a DSGE model. Bjørnland and Jacobsen (2013) provide evidence on the (conditional) response of interest rates to shocks originating in the stock market and in the housing sector but do not report the coefficients in the interest rate equation.…”

Has the Fed Reacted Asymmetrically to Stock Prices?

“…They …nd that the reaction of the Fed to movements in the stock market is substantially larger in periods of high volatility in the stock market than when volatility is low. Recent contributions to this literature include Castro (2008), Fuhrer and Tootell (2008) and Finocchiaro and Queijo von Heideken (2009).…”

Fixed- and Variable-Rate Mortgages, Business Cycles, and Monetary Policy

“…In Shea, the objective is not to compare dynamics and monetary policy under different mortgage contracts but under adaptive learning and rational expectations. On the other hand, Finocchiaro and Queijo (2007) also study alternative monetary rules in a model with housing and collateral constraints from a positive perspective, taking the model to the data 7…”