The authors' findings confirm other results in the literature that argue for a non-negligible role for monetary policy in affecting housing prices. The authors also find a larger impact of monetary policy on housing prices during the housing boom. Whether the cause behind the emergence of financial imbalances is holding interest rates "too low for too long," however, is far from obvious. It is a regular feature of all business cycles that the unemployment rate eventually falls below its long-run natural level. Thus, from the IS-curve standpoint that the authors are using, there is always a stage in the business cycle when the real rate of interest is not high enough to prevent the unemployment rate from falling below its natural level. This does not mean that monetary policy purposely tries to overheat the economy, but rather that unexpected developments and/or a misjudgment of the underlying strength in activity eventually materialize that push the economy beyond full employment. Typically, overshooting full employment leads to a recession. However, not all recessions have been associated with financial crises.
The authors' novel identification strategy relies on monetary policy having a differential impact across different states. This identification strategy has advantages relative to the more standard practice of isolating a monetary policy "shock," for example, as the residual from an estimated policy reaction function. The reason is that the approach allows them to estimate the effect of monetary policy on housing prices in a panel of U.S. states in the context of a framework with a rich set of controls, which stacks the odds against finding a role for their measure of monetary policy, thus underscoring the importance of their finding that monetary policy does play a role in affecting the price of housing.