House Prices and Monetary Policy

Paulo Brito, Giancarlo Marini and Alessandro Piergallini

No 250, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It shows 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 demonstrates that boom or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices

Keywords: House Prices; Housing-Wealth Effects; Monetary Policy Rules; Global Determinacy; Heteroclinic Orbits. (search for similar items in EconPapers)
JEL-codes: C20 E62 H60 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-08-01, Revised 2012-08-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-ure
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Related works:
Journal Article: House prices and monetary policy (2016)
Working Paper: House Prices and Monetary Policy (2016)
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