Housing and Monetary Policy

18 Pages Posted: 21 Dec 2007 Last revised: 22 May 2022

See all articles by John B. Taylor

John B. Taylor

Stanford University; National Bureau of Economic Research (NBER)

Date Written: December 2007

Abstract

Since the mid-1980s, monetary policy has contributed to a great moderation of the housing cycle by responding more proactively to inflation and thereby reducing the boom bust cycle. However, during the period from 2002 to 2005, the short term interest rate path deviated significantly from what this two decade experience would suggest is appropriate. A counterfactual simulation with a simple model of the housing market shows that this deviation may have been a cause of the boom and bust in housing starts and inflation in the last two years. Moreover, a significant time series correlation between housing price inflation and delinquency rates suggests that the poor credit assessments on subprime mortgages may also have been caused by this deviation.

Suggested Citation

Taylor, John B., Housing and Monetary Policy (December 2007). NBER Working Paper No. w13682, Available at SSRN: https://ssrn.com/abstract=1077808

John B. Taylor (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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