Monetary Policy and Regional House-Price Appreciation Monetary Policy and Regional House-Price Appreciation

This paper examines the link between monetary policy and house-price appreciation by exploiting the fact that monetary policy is set at the national level, but has different effects on state-level activity in the United States. As with any other asset price, house prices can be interpreted as the sum of a fundamental component and a bubble component. In principle, monetary policy can have a different impact on these two components. As a result, the role of monetary policy in house-price appreciation can vary over time with changes in the relative size of the bubble component. This paper addresses the still-debated issue of the role played by monetary policy in the recent housing bubble. More generally, the paper contributes to the ongoing debate about the role of monetary policy in maintaining financial stability.

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