Paper Information

Journal:   IRANIAN ECONOMIC RESEARCH   SPRING 2010 , Volume 14 , Number 42; Page(s) 123 To 147.
 
Paper: 

RESPONSES OF MONETARY POLICY TO HOUSE PRICE BUBBLE IN IRAN

 
 
Author(s):  GHOLIZADEH ALI AKBAR, KAMYAB BEHNAZ
 
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Abstract: 

In this paper we analyze the three responses of monetary policy to bubble in housing prices. First rule corresponds to a monetary authority that does not respond to house price inflation. The second rule corresponds to a monetary authority that responds to overall house price inflation, and in third alternative is a policy in which a monetary authority responds to house price bubble. We use an ARDL model with quarterly data for Iran. The results reveal several practical monetary policy lessons. First, a monetary authority should generally respond to house price bubble because minimizes the loss function. Second, this finding holds even if a monetary authority cannot distinguish between fundamental and bubble house price behavior. Third, monetary authority should tighten when house price bubbles are inflating and should ease when house price bubble collapse.

 
Keyword(s): MONETARY POLICY, PRICE BUBBLE, HOUSING, ARDL, IRAN
 
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