Significant attention is paid by policymakers in the UnitedKingdom to the relationship between house prices, thebusiness cycle, and inflation, on account of the pronouncedprocyclical pattern of house prices. Are house prices asymptom of macroeconomic conditions? Or are thereimportant feedback...

We consider a general equilibrium model with frictions in credit markets used by households. Inour economy, houses provide housing services to consumers and serve as collateral to lower borrowingcost.We show that this amplifies and propagates the effect of monetary policy shocks on...