Abstract
This paper asks why monetary contractions have strong effects on the housing market. The paper presents a model with staggered housing adjustment in which monetary policy has real effects in the absence of any rigidity in producer pricing or wages. Limited participation in financial markets leads to a rise in the real mortgage rate following an increase in the nominal short rate. Since households must take on a mortgage to consume housing, the rise in the real interest rate reduces the share of residential investment in output.
Original language | English (US) |
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Pages (from-to) | 931-955 |
Number of pages | 25 |
Journal | Journal of Money, Credit and Banking |
Volume | 44 |
Issue number | 5 |
DOIs | |
State | Published - Aug 2012 |
Keywords
- Limited participation
- Monetary policy
- Mortgages
- Residential investment
- Sticky housing
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics