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Advisor(s)
Abstract(s)
This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It shows that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also demonstrates that boom or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices.
Description
Keywords
House Prices Housing-Wealth Effects Monetary Policy Rules Global Determinacy Heteroclinic Orbits
Pedagogical Context
Citation
Brito, Paulo; Giancarlo Marini and Alessandro Piergallini .(2012). “House prices and monetary policy “, CEIS Tor Vergata, Working Paper No. 250/ 2012. (Search PDF in 2024).
Publisher
CEIS Tor Vergata | Center for Economic and Information Studies | University of Rome