Was improper monetary policy the cause of real estate bubbles in Eurozone peripheral countries? Implications for future policy
| Author: | Bc. Ondřej Tobek |
|---|---|
| Year: | 2014 - summer |
| Leaders: | PhDr. Michal Hlaváček Ph.D. |
| Consultants: | |
| Work type: | Bachelors |
| Language: | English |
| Pages: | 59 |
| Awards and prizes: | B.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good bachelors diploma thesis. |
| Link: | https://is.cuni.cz/webapps/zzp/detail/134592/ |
| Abstract: | This study is concerned with two interconnected issues. First, the suitability of interest rate chosen by ECB is assessed in individual Eurozone countries using seven versions of Taylor rule. The methodolog y primarily emphasizes robustness by employment of various measures of inflation and output gap. The policy rates were found to be too low in all Eurozone’s peripheral countries for prolonged period of time. Second, the sensitivity of real estate prices to a change in interest rate in Greece, Ireland, Italy, Portugal, Spain and UK is estimated using VAR , VECM, BVAR and Panel VAR. The prime concern is whether the low policy rates can be the cause of housing bubbles. The housing prices respond most vividly to interest rate in Ireland, Spain and UK (approximately 3.5% increase in the price as a response to 1% decrease in interest rate) which are also the countries where flexible interest rate mortgages are dominant. Monetary policy is shown to be an important d eterminant of housing prices but it is not the sole reason for the bubbles |
