House Prices and Monetary Policy

Brito, Paulo and Marini, Giancarlo and Piergallini, Alessandro (2016): House Prices and Monetary Policy.

Abstract

This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It demonstrates that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also proves that booms or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: House Prices; Housing-Wealth Effects; Monetary Policy Rules; Equilibrium Dynamics; Global Determinacy; Heteroclinic Orbits.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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