Money And Its Effect On U.S. Housing Sub-Markets: Evidence From The VAR Model

Abstract

Even though it is an area worth studying for policymakers, little research has in fact been done to observe differential effects of monetary policy on housing sub-markets; i.e., new home construction and existing home sales. Utilizing a vector autoregression (VAR) framework, this paper explores the response differentials across the two housing sub-markets in the short run. According to findings in this research, in the short run, the existing home sale market is relatively more affected by expansionary monetary policies than is the new home construction market. Thus, it is suggested policymakers should provide more motivating policies for both builders and consumers to encourage more economic activities in the new home construction market.