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

Jiarui Zhang, Xiaonian Xu

    Research output: Journal PublicationArticlepeer-review

    1 Citation (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 languageEnglish
    Pages (from-to)301-322
    Number of pages22
    JournalResearch in Economics
    Volume74
    Issue number4
    DOIs
    Publication statusPublished - Dec 2020

    Keywords

    • Financial innovation
    • Housing price
    • Monetary policy
    • Mortgage backed securities

    ASJC Scopus subject areas

    • Economics and Econometrics

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