Journal
JOURNAL OF HOUSING ECONOMICS
Volume 17, Issue 1, Pages 65-87Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.jhe.2007.09.002
Keywords
monetary policy; house prices; structural VAR
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I estimate an eight variable structural vector autoregression. (SVAR) model of the UK economy based upon that of Kim and Roubini [Kim, S., Roubini, N., 2000. Exchange rate anomalies in the industrial countries: a solution with a structural VAR approach. J. Monet. Econ. 45(3), 561-586] for the purpose of investigating the role of the housing market in the transmission of monetary policy. Retail sales fall by just under 0.4% following a temporary positive 100 basis points shock to short-term domestic interest rates; inflation is also lowered. House prices fall by 0.75%. House price shocks increase consumption, the price level and interest rates. Combining the central estimates for interest rate and house price shocks suggests that house price movements can explain about one-seventh of the fall in consumption following an interest rate shock. A counterfactual simulation comes to a similar figure. (c) 2007 Elsevier Inc. All rights reserved.
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