The Housing Price Boom of the Late ’90s: Did Inflation Targeting Matter?

Abstract

The recent boom in housing markets of most developed economies has spurred criticism that inflation targeting central banks may have neglected the build-up of financial imbalances. This paper provides a formal empirical test of such claims, using a standard program evaluation methodology to correct for a possible bias due to self-selection into inflation targeting. We consider 17 industrial economies over 1980-2006, among which nine countries have targeted inflation at some dates. We find robust evidence of a significant positive effect of inflation targeting on real housing price growth and on the housing price to rent ratio.

Keywords: Inflation targeting, Housing prices, Treatment effect, OECD countries

JEL Classification: E4, E52, E58