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Title

RESPONSES OF MONETARY POLICY TO HOUSE PRICE BUBBLE IN IRAN

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 Start Page 123 | End Page 147

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.

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