The Housing bubble: how much blame does the Fed really deserve?
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William Miles. 2014. The Housing Bubble: How Much Blame Does the Fed Really Deserve? Journal of Real Estate Research: 2014, Vol. 36, No. 1, pp. 41-58
Two recent empirical papers have blamed the Fed for the latest boom and bust in housing. Neither study includes long-term interest rates, which are more affected by global factors than the federal funds rate (FFR). In this paper, I include both the mortgage rate and the FFR as determinants of housing variables. The results indicate the long-term rate has independent and sometimes greater predictive power for housing than the FFR, especially in recent years. Finally, I demonstrate that the mortgage rate does not simply proxy for monetary policy - the impact of the FFR on long-term rates has also fallen over time.
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