Work detail

Was improper monetary policy the cause of real estate bubbles in Eurozone peripheral countries? Implications for future policy

Author: Bc. Ondřej Tobek
Year: 2014 - summer
Leaders: PhDr. Michal Hlaváček Ph.D.
Work type: Bachelors
Language: English
Pages: 59
Awards and prizes: B.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good bachelors diploma thesis.
Abstract: This study is concerned with two interconnected issues. First, the suitability of interest rate
chosen by ECB is assessed in individual Eurozone countries using seven versions of Taylor rule.
The methodolog
y primarily emphasizes robustness by employment of various measures of
inflation and output gap. The policy rates were found to be too low in all Eurozone’s peripheral
countries for prolonged period of time. Second,
the sensitivity of real estate prices to
a change in
interest rate
in Greece, Ireland, Italy, Portugal, Spain and UK
is estimated using VAR
BVAR and Panel VAR. The prime concern is whether the low policy rates can be the cause of
housing bubbles. The housing prices respond most vividly to
interest rate in Ireland, Spain and
UK (approximately 3.5% increase in the price as a response to 1% decrease in interest rate)
which are also the countries where flexible interest rate mortgages are dominant. Monetary policy
is shown to be an important d
eterminant of housing prices but it is not the sole reason for the bubbles




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