Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107310
Authors: 
Jordà, Òscar
Schularick, Moritz
Taylor, Alan M.
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5147
Abstract: 
Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises. Both effects have become stronger in the postwar era.
Subjects: 
house prices
monetary policy
financial crises
JEL: 
E02
E42
N10
Document Type: 
Working Paper

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