Monetary policy, mortgage rates and the housing bubble

The article uses three alternative models and monthly data to investigate whether the Federal Funds Rate or the rate on standard 30 year mortgages in the US for the period 1987 to 2010 impacts an index of housing prices. The results indicate that positive shocks to the Federal Funds Rate are associated with housing price changes in the negative direction and the mortgage rate in the positive direction. Shocks to the mortgage rate have no statistically significant impact on housing prices except when the data are filtered with the Christiano and Fitzgerald (2003) procedure and a vector auto-regression model using 16 lags is estimated.