House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle
Top Cited Papers
Open Access
- 1 June 2005
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 95 (3) , 739-764
- https://doi.org/10.1257/0002828054201477
Abstract
I develop and estimate a monetary business cycle model with nominal loans and collateral constraints tied to housing values. Demand shocks move housing and nominal prices in the same direction, and are amplified and propagated over time. The financial accelerator is not uniform: nominal debt dampens supply shocks, stabilizing the economy under interest rate control. Structural estimation supports two key model features: collateral effects dramatically improve the response of aggregate demand to housing price shocks; and nominal debt improves the sluggish response of output to inflation surprises. Finally, policy evaluation considers the role of house prices and debt indexation in affecting monetary policy trade-offs.Keywords
All Related Versions
This publication has 29 references indexed in Scilit:
- Technology Shocks in the New Keynesian ModelThe Review of Economics and Statistics, 2004
- Monetary shocks, agency costs, and business cyclesCarnegie-Rochester Conference Series on Public Policy, 2001
- Real Estate and the MacroeconomyBrookings Papers on Economic Activity, 2000
- Robustness of Simple Monetary Policy Rules under Model UncertaintySSRN Electronic Journal, 1998
- Asset market hangovers and economic growth: the OECD during 1984-93Oxford Review of Economic Policy, 1997
- Inflation/Output Variance Trade-Offs and Optimal Monetary PolicyJournal of Money, Credit and Banking, 1997
- Credit CyclesJournal of Political Economy, 1997
- Poverty and the Rate of Time Preference: Evidence from Panel DataJournal of Political Economy, 1991
- Consumption and Liquidity Constraints: An Empirical InvestigationJournal of Political Economy, 1989
- Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence From Panel DataThe Quarterly Journal of Economics, 1984