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.