House prices, consumption, and monetary policy: a financial accelerator approach |
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Authors: | Kosuke Aoki James Proudman Gertjan Vlieghe |
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Institution: | aCREI, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain;bBank of England, Threadneedle Street, London, EC2R 8AH, UK;cLondon School of Economics, Houghton Street, London, WC2A 2AE, UK |
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Abstract: | We consider a general equilibrium model with frictions in credit markets used by households. In our economy, houses provide housing services to consumers and serve as collateral to lower borrowing cost. We show that this amplifies and propagates the effect of monetary policy shocks on housing investment, house prices and consumption. We also consider the effect of a structural change in credit markets that lowers the transaction costs of additional borrowing against housing equity. We show that such a change would increase the effect of monetary policy shocks on consumption, but would decrease the effect on house prices and housing investment. |
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Keywords: | House prices Credit frictions Monetary policy Financial accelerator Consumption |
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