The effects of the monetary policy on the U.S. housing boom from 2001 to 2006

Jiarui Zhang; Xiaonian Xu

doi:10.1016/j.rie.2020.10.001

The effects of the monetary policy on the U.S. housing boom from 2001 to 2006

Jiarui Zhang^*
, Xiaonian Xu

^*Corresponding author for this work

Department of Finance, Accounting and Economics

Research output: Journal Publication › Article › peer-review

2 Citations (Scopus)

Abstract

This paper presents a DSGE model to test the relative significance of monetary policy and financial market innovations in creating the U.S. housing boom between 2001 and 2006. The model generates a trajectory of house price that mimics the Case–Shiller index well when actual Federal Fund rates are taken as inputs. It fails to do so when the monetary policy follows the Taylor rule even if MBS are introduced. We identify several transmission mechanisms of monetary policy with an emphasis on the financial accelerator. The model predicts that banks’ lending standards will go down with the benchmark interest rate.

Original language	English
Pages (from-to)	301-322
Number of pages	22
Journal	Research in Economics
Volume	74
Issue number	4
DOIs	https://doi.org/10.1016/j.rie.2020.10.001
Publication status	Published - Dec 2020

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 17 Partnerships for the Goals

Free Keywords

Financial innovation
Housing price
Monetary policy
Mortgage backed securities

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.rie.2020.10.001

Cite this

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title = "The effects of the monetary policy on the U.S. housing boom from 2001 to 2006",

abstract = "This paper presents a DSGE model to test the relative significance of monetary policy and financial market innovations in creating the U.S. housing boom between 2001 and 2006. The model generates a trajectory of house price that mimics the Case–Shiller index well when actual Federal Fund rates are taken as inputs. It fails to do so when the monetary policy follows the Taylor rule even if MBS are introduced. We identify several transmission mechanisms of monetary policy with an emphasis on the financial accelerator. The model predicts that banks{\textquoteright} lending standards will go down with the benchmark interest rate.",

keywords = "Financial innovation, Housing price, Monetary policy, Mortgage backed securities",

author = "Jiarui Zhang and Xiaonian Xu",

note = "Publisher Copyright: {\textcopyright} 2020 University of Venice",

year = "2020",

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doi = "10.1016/j.rie.2020.10.001",

language = "English",

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AB - This paper presents a DSGE model to test the relative significance of monetary policy and financial market innovations in creating the U.S. housing boom between 2001 and 2006. The model generates a trajectory of house price that mimics the Case–Shiller index well when actual Federal Fund rates are taken as inputs. It fails to do so when the monetary policy follows the Taylor rule even if MBS are introduced. We identify several transmission mechanisms of monetary policy with an emphasis on the financial accelerator. The model predicts that banks’ lending standards will go down with the benchmark interest rate.

KW - Financial innovation

KW - Housing price

KW - Monetary policy

KW - Mortgage backed securities

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JF - Research in Economics

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ER -

The effects of the monetary policy on the U.S. housing boom from 2001 to 2006

Abstract

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ASJC Scopus subject areas

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