This study uses theoretical models and empirical research to explain that interest rates affect the structure of housing price formation and correction rather than affect the price alone. In particular, when interest rates are substantially reduced, the correction of housing prices toward...

The New-Keynesian Taylor-Rule model of inflation determination with no role for money is incomplete. As Cochrane (2007a) argues, it has no credible mechanism for ruling out bubbles and as a result fails to provide a reason for private agents to pick a unique stable path. We propose a way...