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Fall 2013

ISSN 0890-913X

Volume 29, Number 1

Did Monetary Policy Fuel the Housing Bubble?

Azhar Iqbal, Wells Fargo Securities, LLC

Mark Vitner, Wells Fargo Securities, LLC

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TheJournalofPrivateEnterprise29(1),2013,1–24DidMonetaryPolicyFueltheHousingBubble?AzharIqbalWellsFargoSecurities,LLCMarkVitnerWellsFargoSecurities,LLCAbstractSomeobserverssaythe1998–2006housingboomledtotheglobalfinancialcrisisandthe2007–2009recession.Thecausesofthehousingboom,however,areamatterofconsiderabledebate.Thisstudyattemptstosettlethisdebatebyidentifyingthemajorcontributingfactorstothehousingboomandquantifyingwhichfactorswereprimarydriversandwhichmerelyplayedasupportingrole.Specifically,weraiseandanswerthreefundamentalquestions:Didmonetarypolicycreatethehousingbubble?Arethereotherfactorsbesidesmonetarypolicythatcausedthehousingbubble?Didmonetarypolicycombinewithotherfactors,suchaschangingregulations,theexpandedroleofGSEs,theincreasedpaceoffinancialinnovation,somesortofstructuralchange,andrisinginternationalcapitalflows,tocreatethebubble?Ourstatisticalanalysissupportsthehypothesisthatmonetarypolicyandglobalsavingglutarestatisticallycorrelatedwithresidentialdevelopmentandincreasedfinancialinnovation.Moreover,wefoundastructuralchangeisstatisticallyassociatedwiththeriseinhousingstarts,homeprices,andtheuseofalternativemortgageproducts.Thecombinedeffectofmonetarypolicywithothercontributingfactorsisnotstatisticallymeaningful.Additionalstudiesmightinvestigatethishypothesisusingdifferenttechniques/datasets,butourresultssuggestthatthishypothesisshouldnotberuledout.JELCodes:E3,E5Keywords:Monetarypolicy;Globalsavingglut;Regulation;HousingbubbleI.IntroductionTherecentUSrecessionandfinancialcrisishasbeentiedtothecollapseofthehousingsector.Manyeconomistsagreethatthe1998–2006housingboomledtotheglobalfinancialcrisisandtheGreatRecession(2007–2009).Thecausesofthehousingboom,however,areamatterofconsiderabledebate.Agroupofeconomists,including1

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Metadata [hide]

Title	Did Monetary Policy Fuel the Housing Bubble?
Authors/Creators:	Azhar Iqbal, Wells Fargo Securities, LLC Mark Vitner, Wells Fargo Securities, LLC
Year:	2013
Volume:	29
Number:	1
Pages:	1 - 24
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Finance, Monetary Policy, Housing

Citation:
Iqbal, Azhar; Vitner, Mark / 2013. "Did Monetary Policy Fuel the Housing Bubble?." The Journal of Private Enterprise, 29(1): 1-24.