Monetary Policy and House Price Volatility

• Autorzy: Grzegorz Wesołowski
• Języki publikacji: EN

Abstrakty

EN

House prices are of special importance for monetary policy since their sudden falls are usually associated with credit crunch followed by long-lasting and painful recessions. Despite several spectacular episodes of such events, each time house prices exhibit long-lasting growth trend with little volatility around it, it is argued that this pattern is a "new normal". This paper shows that a central bank following this view would increase the volatility of inflation and output as compared to a policy that assumes high volatility of house prices. In the former case the monetary authority would conduct too accommodative monetary policy during abrupt house price expansions significantly increasing output and inflation fluctuations. In the latter situation, in turn, the policy would work well irrespective of the realized house price volatility. (original abstract)

Słowa kluczowe

EN

Real estate prices; Monetary policy; Inflation

PL

Ceny nieruchomości; Polityka pieniężna; Inflacja

• Czasopismo: Central European Journal of Economic Modelling and Econometrics (CEJEME)
• Rocznik: 2021
• Tom: 13
• Numer: nr 4
• Strony: 359--379

Twórcy

autor

Grzegorz Wesołowski

• National Bank of Poland

Bibliografia

• [1] Bernanke B. S., Gertler M., (2001), Should central banks respond to movements in asset prices?, American Economic Review 91(2), 253-257.
• [2] Billi R. M., (2020), Output Gaps and Robust Monetary Policy Rules, International Journal of Central Banking 16(2), 125-152.
• [3] Borio C., Lowe P., (2002), Asset prices, financial and monetary stability: exploring the nexus, BIS Working Papers, Bank for International Settlements.
• [4] Brooks S., Gelman A., (1998), Some issues in monitoring convergence of iterative simulations, [in:] Proceedings of the Section on Statistical Computing' American Statistical Association.
• [5] Cecchetti S. G., (2008), Measuring the macroeconomic risks posed by asset price booms, [in:] Asset Prices and Monetary Policy' NBER Chapters, National Bureau of Economic Research.
• [6] Dieppe A., Legrand R., van Roye B., (2016), The BEAR toolbox, Working Paper Series 1934, European Central Bank.
• [7] Edge R. M., Laubach T., Williams J. C., (2010) , Welfare-maximizing monetary policy under parameter uncertainty, Journal of Applied Econometrics 25(1), 129- 143.
• [8] Gilchrist S., Leahy J. V., (2002), Monetary policy and asset prices, Journal of Monetary Economics 49(1), 75-97.
• [9] Guerrieri L., Iacoviello M., (2017), Collateral constraints and macroeconomic asymmetries, Journal of Monetary Economics 90(C), 28-49.
• [10] Iacoviello M., (2005), House prices, borrowing constraints, and monetary policy in the business cycle, American Economic Review 95(3), 739-764.
• [11] Iacoviello M., Neri S., (2010), Housing Market Spillovers: Evidence from an Estimated DSGE Model, American Economic Journal: Macroeconomics 2(2), 125-164.
• [12] Leitemo K., Soderstrom U., (2005), Simple monetary policy rules and exchange rate uncertainty, Journal of International Money and Finance 24(3), 481-507.
• [13] Levin A. T., Onatski A., Williams J., Williams N. M., (2006), Monetary policy under uncertainty in micro-founded macroeconometric models, [in:] NBER Macroeconomics Annual 2005, Volume 20' NBER Chapters, National Bureau of Economic Research.
• [14] McCallum B. T., (2001), Should Monetary Policy Respond Strongly to Output Gaps?, American Economic Review 91(2), 258-262.
• [15] Orphanides A., Porter R. D., Reifschneider D., Tetlow R., Finan F., (2000), Errors in the measurement of the output gap and the design of monetary policy, Journal of Economics and Business 52(1-2), 117-141.
• [16] Piazzesi M., Schneider M., (2016), Housing and Macroeconomics, [in:] Handbook of Macroeconomics, vol. 2, chapter 19, [eds.:] J. B. Taylor, H. Uhlig, Elsevier, 1547-1640.
• [17] Rudebusch G. D., (2001), Is the Fed too timid? Monetary policy in an uncertain world, The Review of Economics and Statistics 83(2), 203-217.
• [18] Rudebusch G. D., (2002), Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty, Economic Journal 112(479), 402-432.
• [19] Smets F., (2002), Output gap uncertainty: Does it matter for the Taylor rule?' Empirical Economics 27(1), 113-129.
• [20] Taylor J. B., Williams J. C., (2010), Simple and robust rules for monetary policy, [in:] Handbook of Monetary Economics, vol. 3, chapter 15, [eds.:] B. M. Friedman, M. Woodford, Elsevier, 829-859.
• [21] Yellen J. L., (2014), Monetary Policy and Financial Stability: a speech at the 2014 Michel Camdessus Central Banking Lecture, International Monetary Fund, Washington, D.C., July 2, 2014.
• [22] Zhu M., (2014), Housing markets, financial stability and the economy: a speech at the Bundesbank/German Research Foundation/IMF conference, June 5, 2014.

Identyfikatory

DOI

10.24425/cejeme.2021.139834