Work detail

Monetary Policy and House Prices in the US: //Evidence from Time-Varying VAR Model

Author: Mgr. Kristýna Brunová
Year: 2018 - winter
Leaders: prof. Roman Horváth Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 109
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/179470/
Abstract: This thesis examines the effects of monetary policy shocks on the housing market. To
this end, TVP-VAR model with dynamic dimension selection and stochastic volatility is
estimated using monthly data for the United States over the period 1999-2017. Moreover,
the model features estimating the optimal value of the Bayesian shrinkage coefficient in
a time-varying manner. Since the sample covers the Zero Lower Bound period, Wu-Xia
shadow rate is employed to measure the stance of monetary policy. To assess the link
between housing variables and monetary policy, impulse responses and forecast error
variance decompositions are provided. However, due to the time-varying nature of the
model, they are estimated only for selected time periods that correspond both to the
events that most likely influenced the path of macroeconomic and financial variables
and to periods of low economic uncertainty. The main results are threefold. First, the
model suggests that monetary policy shocks can contribute to developments in house
prices. Second, the stimulative monetary policy positively affects residential investment
and negatively affects mortgage rates, however, the effects are not significant due to the
large confidence bands of the impulse responses. Third, higher values of the shrinkage
hyperparameter are crucial for obtaining reasonable impulse responses. Those results are
fairly robust to various specifications of the model.

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