| dc.description.abstract | The first chapter revisits Romer and Romer's (2004) narrative identification approach to monetary policy shocks by allowing a monetary authority to respond systematically to corporate credit spreads and real house price dynamics. The chapter documents the systematic response of interest rates to these variables and shows that accounting for this systematic response solves an observed empirical puzzle in the literature, where unanticipated increases in the interest rate, instead of contracting the economy, acted as expansionary shocks during the Great Moderation period. Specifically, it investigates the Federal Open Market Committee (FOMC) transcripts using natural language processing tools to document the increased importance of house prices in discussions among FOMC members about the implementation of monetary policy.
A measure of high-frequency monetary policy shocks is an important tool for identifying the effects of policy surprises on real house prices. The second chapter documents that high-frequency changes in market rates around FOMC announcements can be explained multi-dimensional way; Surprise changes in the federal funds rate, forward guidance, and large-scale asset purchases. Real house prices respond stronger to the surprises to longer-term future rates as compared to the surprise changes in the federal funds rate. These findings are established using panel data in the United States between 1991 to 2018 across divisions. The responsiveness of house prices to monetary policy shocks depends on the nature of the shock - expansionary versus contractionary. The chapter documents that contractionary monetary policy shocks have a considerably greater and more persistent impact on real house prices.
The last chapter utilizes a multi-level dynamic factor model estimated on quarterly state-level data from 1976 to 2022 using Bayesian methods to estimate the relative importance of the national component in real house price movements compared to local shocks. The chapter provides evidence that regional components account for an average of 48% of the variation in real house price dynamics from 1976 to the late 1990s, indicating a significant role played by regional and state-specific (local) factors during this period. However, in contrast, a national factor contributes to a substantial portion of real house price fluctuations in recent periods, with an average of 87%for 2007-2011 and 85% for 2020-2022. | |
