99 Luftballons: Monetary policy and the house price boom across U.S. states

We use a dynamic factor model estimated on quarterly state-level data from 1986 to 2005 via Bayesian methods to disentangle the relative importance of the common component in OFHEO house price movements from local (state- or region-specific) shocks. We find that historically movements in house prices were mainly driven by the local component. The recent period (2001-2005) has been different: the increase in house prices is a national phenomenon. We use a VAR to investigate the extent to which expansionary monetary policy is responsible for this phenomenon. We find the impact of policy shocks on house prices to be small in comparison with the magnitude of recent fluctuations.