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Do House Prices Influence the Effect of Monetary Policy Shocks on Private Consumption? -Evidence From Five EMU Member States

Gabrielsson, Elin LU (2011) NEKM01 20111
Department of Economics
Abstract
The aim of this thesis is to study the role of house prices in influencing the effect of monetary policy shocks on private consumption in five EMU member states during the period 1995Q1-2010Q4. The role of house prices may be increasingly important in effecting private consumption possibilities due to the deregulations of mortgage markets in many countries in recent years and the increasing availability of mortgage equity products. Moreover, this study investigates whether or not changing credit market conditions during a recession may have any influence on the role of house prices. Using structural VAR models to be able to identify the interest rate shocks, the response of consumption in the absence and presence of house prices is studied... (More)
The aim of this thesis is to study the role of house prices in influencing the effect of monetary policy shocks on private consumption in five EMU member states during the period 1995Q1-2010Q4. The role of house prices may be increasingly important in effecting private consumption possibilities due to the deregulations of mortgage markets in many countries in recent years and the increasing availability of mortgage equity products. Moreover, this study investigates whether or not changing credit market conditions during a recession may have any influence on the role of house prices. Using structural VAR models to be able to identify the interest rate shocks, the response of consumption in the absence and presence of house prices is studied through impulse response analysis. The results show that house price sensitivity to monetary policy shocks is more pronounced in countries with more developed mortgage markets. While there was a visible and non-temporary divergence between the impulse responses of consumption in the two versions of the model (including and excluding house prices, respectively), this could not be proven to be statistically significant. Three out of five countries display a larger house price effect when using data from the whole period as opposed to the house price effect observed when using only data from the pre-crisis period, 1995Q1-2007Q2. However, the results were not statistically significant. (Less)
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author
Gabrielsson, Elin LU
supervisor
organization
course
NEKM01 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
House Prices, Monetary Policy, Consumption, Structural VAR, Impulse Response Analysis
language
English
id
2154281
date added to LUP
2011-09-27 08:56:11
date last changed
2011-09-27 08:56:11
@misc{2154281,
  abstract     = {The aim of this thesis is to study the role of house prices in influencing the effect of monetary policy shocks on private consumption in five EMU member states during the period 1995Q1-2010Q4. The role of house prices may be increasingly important in effecting private consumption possibilities due to the deregulations of mortgage markets in many countries in recent years and the increasing availability of mortgage equity products. Moreover, this study investigates whether or not changing credit market conditions during a recession may have any influence on the role of house prices. Using structural VAR models to be able to identify the interest rate shocks, the response of consumption in the absence and presence of house prices is studied through impulse response analysis. The results show that house price sensitivity to monetary policy shocks is more pronounced in countries with more developed mortgage markets. While there was a visible and non-temporary divergence between the impulse responses of consumption in the two versions of the model (including and excluding house prices, respectively), this could not be proven to be statistically significant. Three out of five countries display a larger house price effect when using data from the whole period as opposed to the house price effect observed when using only data from the pre-crisis period, 1995Q1-2007Q2. However, the results were not statistically significant.},
  author       = {Gabrielsson, Elin},
  keyword      = {House Prices,Monetary Policy,Consumption,Structural VAR,Impulse Response Analysis},
  language     = {eng},
  note         = {Student Paper},
  title        = {Do House Prices Influence the Effect of Monetary Policy Shocks on Private Consumption? -Evidence From Five EMU Member States},
  year         = {2011},
}