Open AccessMonetary Policy and Housing Prices Dynamics in India
Author(s) -
M. Waseem Naikoo,
Arshid Hussain Peer,
Farhan Ahmed,
M. Ishtiaq
Publication year - 2021
Publication title -
eurasian journal of business and economics
Language(s) - English
Resource type - Journals
eISSN - 1694-5948
pISSN - 1694-5972
DOI - 10.17015/ejbe.2021.027.03
Subject(s) - economics , monetary policy , variance decomposition of forecast errors , monetary economics , interest rate , distributed lag , exchange rate , shock (circulatory) , price index , real estate , lag , real gross domestic product , econometrics , macroeconomics , medicine , computer network , finance , computer science
This study attempts to examine the relationship between monetary policy and housing prices in India. We use monthly data from January 2009 to December 2018 of four variables- Housing Price Index (HPI), Real Effective Exchange Rate (REER), Gross Domestic Price (GDP), and interest rate for our estimations using the Autoregressive Distributive Lag (ARDL) Model. The results from the study show that the impact of monetary policy on housing prices is significant only on lag three; however, the coefficient is very small. The results from the ARDL model are also supported by the variance decomposition of housing price. The variance decomposition of housing prices highlights that monetary policy explains around 13 percent of the variation in housing prices over a period of ten months. Further, the accumulated impulse response function reveals that with one-unit shock to interest rate results in a -0.000875 unit change in housing price. The study stipulates that, since conventional monetary policy has a modest impact on housing prices, therefore, it is insignificant for addressing the problems of real estate in India.