Infrequent Housing Adjustment, Limited Participation, and Monetary Policy

Ghent, Andra C.

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Infrequent Housing Adjustment, Limited Participation, and Monetary Policy

Journal of Money, Credit, and Banking, Forthcoming

32 Pages Posted: 2 Oct 2008 Last revised: 7 May 2015

See all articles by Andra C. Ghent

Andra C. Ghent

University of Utah - David Eccles School of Business

Date Written: October 28, 2011

Abstract

This paper asks why monetary contractions have strong effects on the housing market. The paper presents a model with staggered housing adjustment in which monetary policy has real effects in the absence of any rigidity in producer pricing or wages. Limited participation in financial markets leads to a rise in the real mortgage rate following an increase in the nominal short rate. Since households must take on a mortgage to consume housing, the rise in the real interest rate reduces the share of residential investment in output.

Keywords: Sticky Housing, Residential Investment, Limited Participation

JEL Classification: E52, R21, R3

Suggested Citation: Suggested Citation

Ghent, Andra C., Infrequent Housing Adjustment, Limited Participation, and Monetary Policy (October 28, 2011). Journal of Money, Credit, and Banking, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1275970