Essays on Interest Rates and the Housing Market
Author | : Roberto Maria Croce |
Publisher | : |
Total Pages | : 99 |
Release | : 2011 |
ISBN-10 | : OCLC:746579450 |
ISBN-13 | : |
Rating | : 4/5 (50 Downloads) |
Book excerpt: Abstract: In the first essay of this dissertation, "Monetary Policy and the Housing Cycle," I investigate the role of monetary policy in a housing boom that precipitated the U.S. financial crisis of 2007. I find expansionary policy between 2002 and 2005 accounts for about 50% of the peak deviation of real residential investment from its long-run trend, which occurred in the second quarter of 2005. To determine if monetary policy was a contributor to the housing boom I estimate a large dynamic stochastic general equilibrium model (DSGE) to fit the economy in several different time periods. I mathematically isolate a series of changes in the Fed Funds rate that are statistically unrelated to changes in the macroeconomy and classify these deviations as a measure of monetary policy. The magnitude of the monetary policy series is relatively small during the housing boom but explains half of the of the 2005 peak in residential investment because of inertia in the Fed Funds rate.