Premium
Financial Liberalization And The Sensitivity Of House Prices To Monetary Policy: Theory And Evidence
Author(s) -
Iacoviello Matteo,
Minetti Raoul
Publication year - 2003
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00332
Subject(s) - economics , monetary policy , interest rate , house price , monetary economics , liberalization , financial market , macroeconomics , finance , market economy
We analyse the impact of financial liberalization on the link between monetary policy and house prices. We present a simple model of a small open economy subjectto credit constraints. The model shows that the higher the degree of financial liberalizationis, the stronger is the impact of interest rate shocks on house prices. We then usevector autoregressions to study the role of monetary policy shocks in house price fluctuations in Finland, Sweden and the UK, characterized by financial liberalizationepisodes over the last 20 years. We find that the response of house prices to interestrate surprises is bigger and more persistent in periods characterized by more liberalized financial markets.