Did monetary policy cause a housing bubble in the US? --Evidence from 2000-2005 in US

Bohan Feng

doi:10.54691/bcpbm.v29i.2295

Authors

Bohan Feng

DOI:

https://doi.org/10.54691/bcpbm.v29i.2295

Keywords:

Monetary policy, Housing bubble, Federal funds rate, Federal Reserve System

Abstract

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.

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