CREDIT CONSTRAINT AND THE ASYMMETRIC MONETARY POLICY EFFECT ON HOUSE PRICES

We study the possible asymmetric effect of monetary policy on house prices under different credit regimes. We first derive the implications of a theoretical model in which agents may be collateral-constrained. We then empirically examine the implications of the model using the threshold vector autoregression model. Two different measures reflecting the tightness of the credit market are computed to serve as the threshold variable. We find that house prices react to a monetary shock initially more strongly but the effect is less persistent in a credit boom regime than in a normal credit regime. This result is consistent with the findings of our theoretical model.