Infrequent Housing Adjustment, Limited Participation, and Monetary Policy

Andra Ghent

Research output: Contribution to journalArticle

4 Scopus citations

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 languageEnglish (US)
Pages (from-to)931-955
Number of pages25
JournalJournal of Money, Credit and Banking
Volume44
Issue number5
DOIs
StatePublished - Aug 1 2012

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Keywords

  • Limited participation
  • Monetary policy
  • Mortgages
  • Residential investment
  • Sticky housing

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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