Did monetary policy cause a housing bubble in the US?
--Evidence from 2000-2005 in US
DOI:
https://doi.org/10.54691/bcpbm.v29i.2295Keywords:
Monetary policy, Housing bubble, Federal funds rate, Federal Reserve SystemAbstract
This article uses quantitative analysis, setting three variables: the federal funds rate, mortgage servicing as a percentage of disposable personal income, and house prices. I made a simple model using the logical relationship of the independent variable, mediator variable, and dependent variable. Then regression analysis is conducted to explore the relationship between monetary policy and real estate bubbles. The conclusion is that loose monetary policy contributed to the housing bubble, but raising the federal funds rate did not contain the rise in housing prices, which means the existing monetary policy tools are insufficient to solve the problem. A better regulatory system is needed to avoid the emergence of bubble economies.
Downloads
References
Bernanke, B.S., Gertler, M., 1989. Agency costs, net worth, and business fluctuations. Amer. Econ. Rev. 79 (1), 14–31.
Bernanke, B.S., Gertler, M., 1995. Inside the black box: The credit channel of monetary policy transmission. J. Econ. Perspect. 9 (4), 27–48. DOI: https://doi.org/10.1257/jep.9.4.27
Clarida, R., Gali, J., & Gertler, M. (2000). The Quarterly Journal of Economics, 115(1), 147–180. DOI: https://doi.org/10.1162/003355300554692
Cochrane, J. H. (2011). Determinacy and identification with Taylor rules. The Journal of Political Economy, 119(3), 565–615. DOI: https://doi.org/10.1086/660817
Conefrey, T., & Fitz Gerald, J. (2010). Managing housing bubbles in regional economies under Emu: Ireland and Spain. National Institute of Economic and Social Research, 211(1), R27–R44. DOI: https://doi.org/10.1177/0027950110364103
Hellmann, T., Murdock, C., Stiglitz, J.E., 2000. Liberalization, moral hazard in banking, and prudential regulation: are capital requirements enough? Am. Econ. Rev. 90, 147–165. DOI: https://doi.org/10.1257/aer.90.1.147
Hofmann, B., Bogdanova, B., 2012. Taylor rules and monetary policy: a global ‘great deviation’? BIS Q. Rev. (September) 37–48.
Iacoviello, M., 2005. House prices, borrowing constraint, and monetary policy in the business cycle. Am. Econ. Rev. (June) 739–764. DOI: https://doi.org/10.1257/0002828054201477
Iacoviello, M., Neri, S., 2010. Housing market spillovers: evidence from an estimated DSGE model. Am. Econ. J. 2 (2), 125–164. DOI: https://doi.org/10.1257/mac.2.2.125
Justiniano, A., G.E. Primiceri, and A. Tambalotti, 2015, “Credit supply and the housing boom,” NBER working paper, No. 20874. DOI: https://doi.org/10.3386/w20874
Taylor, J.B., 1993. Discretion versus policy rules in practice. Carnegie-Rochester Conf. Ser. Public Policy 39, 195–214. DOI: https://doi.org/10.1016/0167-2231(93)90009-L
Taylor, J.B., 2012. Monetary policy rules work and discretion doesn’t: a tale of two eras. J. Money, Credit, Bank. 44 (6), 1017–1032. DOI: https://doi.org/10.1111/j.1538-4616.2012.00521.x
Leary, M.T., 2009. Bank loan supply, lender choice, and corporate capital structure. J. Financ. 64 (3 (06)), 1143–1185 page. DOI: https://doi.org/10.1111/j.1540-6261.2009.01461.x
Loutskina, E., 2011. The role of Securitization in bank liquidity and funding management. J. Financ. Econ. 100, 663–684. DOI: https://doi.org/10.1016/j.jfineco.2011.02.005
Mattich, A., 2012. Fed not at fault for housing bubble? Really? Comment. Wall Street J. (March 23).
Weistroffer, C., 2009, “Credit default swaps: heading towards a more stable system,” Deutsche Bank Res. Pap., issue of December.
Ziadeh-Mikati, N., 2013, “Too low for too long interest rate, bank risk taking and bank capitalization: evidence from the U.S. commercial banks,” working paper.
Marimon, R., Sunder, S., 1994. Expectations and learning under alternative monetary regimes: an experimental approach. Economic Theory 4 (1), 131–162. DOI: https://doi.org/10.1007/BF01211121
Miao, J., Shen, Z., Wang, P., 2019. Monetary policy and rational asset price bubbles: Comment. American Economic Review 109 (5), 1969–1990. DOI: https://doi.org/10.1257/aer.20180145
Noussair, C., Tucker, S., 2006. Futures markets and bubble formation in experimental asset markets. Pacific Economic Review 11 (2), 167–184. DOI: https://doi.org/10.1111/j.1468-0106.2006.00308.x
Palan, S., 2013. A Review of bubbles and crashes in experimental asset markets. Journal of Economic Surveys 27 (3), 570–588. doi:10.1111/joes.12023. DOI: https://doi.org/10.1111/joes.12023
Pfajfar, D., Žakelj, B., 2018. Inflation expectations and monetary policy design: Evidence from the laboratory. Macroeconomic Dynamics 22 (4), 1035–1075. Porter, D.P., Smith, V.L., 1995. Futures contracting and dividend uncertainty in experimental asset markets. Journal of Business 68 (4), 509–541. DOI: https://doi.org/10.1017/S1365100516000560
Crockett, S., Duffy, J., Izhakian, Y., 2019. An experimental test of the Lucas asset pricing model. The Review of Economic Studies 86 (2), 627–667. DOI: https://doi.org/10.1093/restud/rdy035
Duffy, J., 2016. Macroeconomics: a survey of laboratory research. Handbook of Experimental Economics 2, 1–90. DOI: https://doi.org/10.1515/9781400883172-002
Dufwenberg, M., Lindqvist, T., Moore, E., 2005. Bubbles and experience: An experiment. American Economic Review 95 (5), 1731–1737. DOI: https://doi.org/10.1257/000282805775014362
Downloads
Published
Issue
Section
