Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.
Sticky House Price?
Macroeconomic Policy and Financial Markets
The assumption of fully flexible house price is widespread in several general equilibrium monetary models. In this paper, I provide selective survey of existing evidence, arguing that rigidities do exist in house price movements, along with empirical and theoretical contributions. In the 18 OECD countries evidence-based VAR analysis of monetary transmission mechanism, a rent puzzle arises as real rent increases in response to exogenous increase in interest rate, opposite with what the theory suggests. In the final part of the paper, 18 OECD countries are divided into two subgroups of low and high credit market flexibility. The results present interesting linkages between sticky price, bubbles, monetary policy, and credit market condition that should be high on future research agenda.
Read the full paper or view slides below: