JACIII Vol.26 No.4 pp. 581-589
doi: 10.20965/jaciii.2022.p0581


Asymmetric Effect of Monetary Policy on Housing Price from Short-Term and Long-Term Perspectives

Kai Zhao*, Yi-Bing Hao**, and Wan-Shu Wu***

*School of Economics, Qingdao University
62 Keda Avenue, Qingdao 266075, China

**School of Statistics, Huaqiao University
668 Jimei Ave, Xiamen 361021, China

***College of Architecture and Urban Planning, Qingdao University of Technology
11 Fushun Road, Qingdao 266033, China

October 26, 2018
April 19, 2022
July 20, 2022
non-linear ARDL, interest rate, M2, housing price, asymmetric impact

This study uses two main monetary policy tools, the real interest rate and M2, to investigate and analyze the correlation between monetary policy tools and housing prices. The sample period runs from 2006 to 2021 and the data frequency is monthly. The analysis explores the effects of the real interest rate and M2 on real estate prices through the integration of short- and long-term perspectives. The findings show that the real interest rate has no asymmetric effect on housing prices in the short term, but has a significant asymmetric effect in the long term. Monetary supply is asymmetric in both the short and long terms. In the short term, monetary supply tools are invalid for adjusting housing prices, while increasing the real interest rate could inhibit the rise in housing prices; in the long term, decreasing the real interest rate and monetary supply could inhibit the rise in housing prices.

Cite this article as:
K. Zhao, Y. Hao, and W. Wu, “Asymmetric Effect of Monetary Policy on Housing Price from Short-Term and Long-Term Perspectives,” J. Adv. Comput. Intell. Intell. Inform., Vol.26, No.4, pp. 581-589, 2022.
Data files:
  1. [1] L. Svensson, “Inflation targeting and leaning against the wind,” Int. J. of Central Banking, Vol.10, No.2, pp. 103-114, 2014.
  2. [2] C. Ungerer, “Monetary policy, hot housing markets, and leverage,” Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, No.2015-048, doi: 10.17016/FEDS.2015.048, 2015.
  3. [3] J. R. Kearl and F. S. Mishkin, “Illiquidity, the demand for residential housing, and monetary policy,” The J. of Finance, Vol.32, No.5, pp. 1571-1586, 1977.
  4. [4] M. Iacoviello, “House Prices and the Macro Economy in Europe: Results from a Structural VAR Analysis,” ECB Working Paper Series, No.18, 2000.
  5. [5] F. S. Mishkin, “Housing and the Monetary Transmission Mechanism,” NBER Working Papers, Vol.11, No.Supplement s1, pp. 359-413, 2007.
  6. [6] M. S. Hasan and M. Taghavi, “Residential Investment, Macroeconomic Activity and Financial Deregulation in the UK: An Empirical Investigation,” J. of Economics & Business, Vol.54, No.4, pp. 447-462, 2002.
  7. [7] M. Iacoviello and R. Minetti, “Financial Liberalization and the Sensitivity of House Prices to Monetary Policy: Theory and Evidence,” The Manchester School, Vol.71, No.1, pp. 20-34, 2003.
  8. [8] D. Nahm and J. Macri, “The effects of monetary policy on consumption, housing wealth and house prices: An Australian perspective,” J. of Economic Research, Vol.21, pp. 175-204, 2016.
  9. [9] J. B. Kau and D. Keenan, “The Theory of Housing and Interest Rates,” J. of Financial and Quantitative Analysis, Vol.15, No.4, pp. 833-847, 1980.
  10. [10] J. C. Harris, “The effect of real rates of interest on housing prices,” The J. of Real Estate Finance and Economics, Vol.2, No.1, pp. 47-60, 1989.
  11. [11] A. K. Reichert, “The impact of interest rates, income and employment upon regional housing prices,” The J. of Real Estate Finance and Economics, Vol.3, No.4, pp. 373-391, 1990.
  12. [12] P. Fortura and J. Kushner, “Canadian Inter-City House Price Differentials,” Real Estate Economics, Vol.14, No.4, pp. 525-536, 1986.
  13. [13] G. Kenny, “Modeling the Demand and Supply Sides of the Housing Market: Evidence from Ireland,” Economic Modeling, Vol.16, No.3, pp. 389-409, 1999.
  14. [14] T. Y. J. Wong, C. M. E. Hui, and W. Seabrooke, “The impact of interest rates upon housing prices: an empirical study of Hong Kong’s market,” Property Management, Vol.21, No.2, pp. 153-170, 2003.
  15. [15] N. Apergis, “Housing prices and macroeconomic factors: prospects within the European Monetary Union,” Int. Real Estate Review, Vol.6, No.1, pp. 63-74, 2003.
  16. [16] M. Iacoviello, “House prices, borrowing constraints and monetary policy in the business cycle,” American Economic Review, No.3, pp. 739-764, 2005.
  17. [17] Y. Jin and Z. Zeng, “Residential investment and house prices in a multi-sector monetary business cycle model,” J. of Housing Economics, Vol.13, No.4, pp. 268-286, 2004.
  18. [18] A. Elbourne, “The UK housing market and the monetary policy transmission mechanism: a SVAR approach,” J. of Housing Economics, Vol.17, No.1, pp. 65-87, 2008.
  19. [19] L. Allen, G. N. Kenyon, and V. S. Natarajan, “The regional impact of monetary policy on house prices,” Int. J. of Business Innovation & Research, Vol.6, No.4, pp. 391-400, 2012.
  20. [20] T. Lei and G. Wu, “Effects of Monetary Policy on Housing Price Fluctuations: Evidence from China’s Big-to-Medium-Sized Cities,” Proc. of the 2014 Int. Conf. on Construction and Real Estate Management (ICCREM 2014), pp. 1123-1128, 2014.
  21. [21] N. Veledniger, “Consumer confidence and monetary policy: a US housing market investigation,” Bachelor thesis, Erasmus University, 2014.
  22. [22] A. Banerjee, J. Dolado, and R. Mestre, “Error-correction mechanism tests in a single equation framework,” J. of Time Series Analysis, Vol.19, No.3, pp. 267-285, 1998.
  23. [23] M. H. Pesaran, Y. Shin, and R. J. Smith, “Bounds testing approaches to the analysis of level relationships,” J. of Applied Econometrics, Vol.16, pp. 289-326, 2001.

*This site is desgined based on HTML5 and CSS3 for modern browsers, e.g. Chrome, Firefox, Safari, Edge, Opera.

Last updated on Aug. 05, 2022