Abstract

This study provides an analysis of the relationship between monetary policy and the housing market and seeks to determine whether expansionary monetary policy contributes to the formation of bubbles in the housing market. Inspired by the 2008 Financial Crisis, an appreciation for the economic power of the Federal Reserve, and an understanding of the multi-causal nature of economic phenomena, this study aims to provide knowledge pertaining to the behavior of the housing market that may serve of use in the consideration of monetary policy decisions in the future. This study conducts a review of existing literature followed by an empirical analysis of both the relationship between monetary policy and the housing market and the identification of bubble formation in the housing market. A fixed-effects panel data regression is performed using the real interest rate and housing market indices for 12 cities as the independent and dependent variables, while controlling for population, income, and unemployment. The study also develops a method of bubble formation identification using housing index and rent index data. The results suggests that monetary policy does contribute to the formation of bubbles in the housing market.

Advisor

Tian, Huiting

Department

Economics

Keywords

Monetery Policy, Discount Rate, Housing Market, Asset Bubble, Economics, Macro

Publication Date

2023

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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