Ben S Bernanke: Monetary policy and the housing bubble
Speech by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal Reserve
System, at the Annual Meeting of the American Economic Association, Atlanta, Georgia,
3 January 2010.
* * *
The financial crisis that began in August 2007 has been the most severe of the post-World
War II era and, very possibly - once one takes into account the global scope of the crisis, its
broad effects on a range of markets and institutions, and the number of systemically critical
financial institutions that failed or came close to failure - the worst in modern history.
Although forceful responses by policymakers around the world avoided an utter collapse of
the global financial system in the fall of 2008, the crisis was nevertheless sufficiently intense
to spark a deep global recession from which we are only now beginning to recover.
Even as we continue working to stabilize our financial system and reinvigorate our economy,
it is essential that we learn the lessons of the crisis so that we can prevent it from happening
again. Because the crisis was so complex, its lessons are many, and they are not always
straightforward. Surely, both the private sector and financial regulators must improve their
ability to monitor and control risk-taking. The crisis revealed not only weaknesses in
regulators' oversight of financial institutions, but also, more fundamentally, important gaps in
the architecture of financial regulation around the world. For our part, the Federal Reserve
has been working hard to identify problems and to improve and strengthen our supervisory
policies and practices, and we have advocated substantial legislative and regulatory reforms
to address problems exposed by the crisis.
As with regulatory policy, we must discern the lessons of the crisis for monetary policy.
However, the nature of those lessons is controversial. Some observers have assigned
monetary policy a central role in the crisis. Specifically, they claim that excessively easy
monetary policy by the Federal Reserve in the first half of the decade helped cause a bubble
in house prices in the United States, a bubble whose inevitable collapse proved a major
source of the financial and economic stresses of the past two years. Proponents of this view
typically argue for a substantially greater role for monetary policy in preventing and
controlling bubbles in the prices of housing and other assets. In contrast, others have taken
the position that policy was appropriate for the macroeconomic conditions that prevailed, and
that it was neither a principal cause of the housing bubble nor the right tool for controlling the
increase in house prices. Obviously, in light of the economic damage inflicted by the
collapses of two asset price bubbles over the past decade, a great deal more than historical
accuracy rides on the resolution of this debate.
The goal of my remarks today is to shed some light on these questions. I will first review U.S.
monetary policy in the aftermath of the 2001 recession and assess whether the policy was
appropriate, given the state of the economy at that time and the information that was
available to policymakers. I will then discuss some evidence on the sources of the U.S.
housing bubble, including the role of monetary policy. Finally, I will draw some lessons for
future monetary and regulatory policies.1
U.S. monetary policy, 2002-2006
I will begin with a brief review of U.S. monetary policy during the past decade, focusing on
the period from 2002 to 2006. As you know, the U.S. economy suffered a moderate
recession between March and November 2001, largely traceable to the ending of the
dotcom boom and the resulting sharp decline in stock prices. Geopolitical uncertainties
associated with the terrorist attacks of September 11, 2001, and the invasion of Iraq in March
2003, as well as a series of corporate scandals in 2002, further clouded the economic
situation in the early part of the decade.
Slide 1 shows the path, from the year 2000 to the present, of one key indicator of monetary
policy, the target for the overnight federal funds rate set by the Federal Open Market
Committee (FOMC). The Federal Reserve manages the federal funds rate, the interest rate
at which banks lend to each other, to influence broader financial conditions and thus the
course of the economy. As you can see, the target federal funds rate was lowered quickly in
response to the 2001 recession, from 6.5 percent in late 2000 to 1.75 percent in December
2001 and to 1 percent in June 2003. After reaching the then-record low of 1 percent, the
target rate remained at that level for a year. In June 2004, the FOMC began to raise the
target rate, reaching 5.25 percent in June 2006 before pausing. (More recently, as you know,
and as the rightward portion of the slide indicates, rates have been cut sharply once again.)
The low policy rates during the 2002-06 period were accompanied at various times by
"forward guidance" on policy from the Committee. For example, beginning in August 2003,
the FOMC noted in four post-meeting statements that policy was likely to remain
accommodative for a "considerable period."2
The aggressive monetary policy response in 2002 and 2003 was motivated by two principal
factors. First, although the recession technically ended in late 2001, the recovery remained
quite weak and "jobless" into the latter part of 2003. Real gross domestic product (GDP),
which normally grows above trend in the early stages of an economic expansion, rose at an
average pace just above 2 percent in 2002 and the first half of 2003, a rate insufficient to halt
continued increases in the unemployment rate, which peaked above 6 percent in the first half
of 2003.3 Second, the FOMC's policy response also reflected concerns about a possible
unwelcome decline in inflation. Taking note of the painful experience of Japan, policymakers
worried that the United States might sink into deflation and that, as one consequence, the
FOMC's target interest rate might hit its zero lower bound, limiting the scope for further
monetary accommodation. FOMC decisions during this period were informed by a strong
consensus among researchers that, when faced with the risk of hitting the zero lower bound,
policymakers should lower rates preemptively, thereby reducing the probability of ultimately
being constrained by the lower bound on the policy interest rate.4
2
In January 2004, the Committee expressed an intention to be "patient" regarding the removal of monetary
policy accommodation. In May 2004, a month before the Committee began to increase its target for the federal
funds rate, it said that accommodation was likely to be removed at a pace that would be "measured." For
discussions of the potential benefits of such communication, particularly in the face of possible deflationary
risks, see Eggertsson and Woodford (2003) and Woodford (2007).
3
Many saw the relatively weak recovery as reflecting a "capital overhang" left over from the rapid pace of
investment in information technology during the boom. According to this view, the capital overhang both
inhibited new capital investment and, by leading to ongoing productivity improvements, also limited the need
for employers to add workers to meet the relatively moderate increases in final demand that were forthcoming.
As noted in the text, geopolitical uncertainties as well as corporate scandals added to the uncertainties faced
by employers.
4
For discussion of the Japanese experience and appropriate policies near the zero bound, see Fuhrer and
Madigan (1997), Reifschneider and Williams (2000), and Ahearne and others (2002).
BIS Review 1/2010
Evaluating the tightness or ease of monetary policy
Although macroeconomic conditions certainly warranted accommodative policies in 2002 and
subsequent years, the question remains whether policy was nevertheless easier than
necessary. Since we cannot know how the economy would have evolved under alternative
monetary policies, any answer to this question must be conjectural.
One approach used by many who have addressed this question is to compare Federal
Reserve policies during this period to the recommendations derived from simple policy rules,
such as the so-called Taylor rule, developed by John Taylor of Stanford University (Taylor,
1993). This approach is subject to a number of limitations, which are important to keep in
mind.5 Notably, simple policy rules like the Taylor rule are only rules of thumb, and
reasonable people can disagree about important details of the construction of such rules.
Moreover, simple rules necessarily leave out many factors that may be relevant to the
making of effective policy in a given episode - such as the risk of the policy rate hitting the
zero lower bound, for example - which is why we do not make monetary policy on the basis
of such rules alone. For these reasons, even strong proponents of simple policy rules
generally advise that they be used only as guidelines, not as substitutes for more complete
policy analyses; and that, to ensure robustness, the recommendations of a number of
alternative simple rules should be considered (Taylor, 1999a). That said, as much of the
debate about monetary policy after the 2001 recession has made use of such rules, I will
discuss them here as well.
The well-known Taylor rule relates the prescribed setting of the overnight federal funds rate
- the interest rate targeted by the FOMC in its making of monetary policy - to two factors:
(1) the deviation, in percentage points, of the current inflation rate from policymakers'
longerterm inflation objective; and (2) the so-called output gap, defined as the percentage
difference between current output (usually defined as real GDP) and the "normal" or
"potential" level of output. In symbols, the standard form of the Taylor rule is given by the
equation shown in Slide 2. In this equation, is the prescribed value of the policy interest rate
it
in a given period t; pt - pt* is the deviation of the actual inflation rate p from its target p* in
y
period t; and yt - yt*, the "output gap," is the deviation of actual real output from potential
output y* in period t. The parameters a and b are positive numbers that describe how
strongly the policy rate should respond to deviations of inflation from its target and of output
from its potential.
As we would expect, the Taylor rule tells policymakers that interest rates should be higher
when inflation is above target, (pt - pt*) > 0, or when output is above its potential,
- > 0. Taylor (1993) estimated the long-run real value of the federal funds rate to be
(yt yt*)
about 2 percent. The equation for the Taylor rule accordingly shows that when inflation and
output are equal to their targets, the federal funds rate - which is expressed here in nominal
terms - should equal 2 plus the rate of inflation. Equivalently, when inflation and output equal
their targets, the real value of the federal funds rate should equal 2 percent.
To make the Taylor rule equation shown in Slide 2 operational, one needs to specify
numerical values for the coefficients a and b, choose appropriate indicators of inflation and
output, and specify a target rate for inflation and a measure of potential output. In his 1993
a b
paper introducing his eponymous rule, Taylor suggested setting both and equal to 0.5.
So, for example, according to the original Taylor rule, if output rises 1 percent relative to its
potential, then, all else equal, the Federal Reserve should raise its policy rate by 0.5 percent,
or 50 basis points. Following Taylor's suggestions for parameter values, in Slide 3 we show
by the dashed red line the values of the federal funds rate implied by the Taylor rule for the
period from 2000 to the present, with inflation measured by the consumer price index (CPI),
the Fed's assumed inflation target set to 2 percent, output measured by real GDP, and the
output gap as estimated retrospectively by the Federal Reserve's primary forecasting model,
the FRB/US model. The Taylor rule prescription is juxtaposed with the actual path of the
policy rate taken from Slide 1, again shown in blue.
The comparison displayed in Slide 3 provides the most commonly cited evidence that
monetary policy was too easy during the period from 2002 to 2006, as the actual federal
funds rate is below the values implied by the Taylor rule - by about 200 basis points on
average over this five-year period (Taylor, 2007).
Of course, the validity of that conclusion depends on whether the specific assumptions and
measurements used to construct the Taylor rule's policy prescription are appropriate. Room
for disagreement exists. For example, some empirical and simulation evidence suggests that
b
the responsiveness of policy to the output gap, given by the parameter in the Taylor rule
equation, should be higher than the value of 0.5 originally chosen by Taylor.6 Higher values
of b lead the Taylor rule to recommend somewhat lower policy rates during recessions and
their aftermaths.
The prescriptions of the Taylor rule may also depend sensitively on how inflation and the
output gap are measured. The difficulties in measuring the output gap, particularly in real
time, are well known. The choice of inflation measure may also be consequential. In his
original 1993 paper, Taylor chose to measure inflation using the GDP deflator. As noted, the
Taylor rule policy prescription shown in Slide 3 is based on the familiar CPI measure of
inflation. For its part, during the past decade, the FOMC has typically focused on inflation as
measured by the price index for personal consumption expenditures (PCE), because that
measure is less dominated than is the CPI by the imputed rent of owner-occupied housing,
and for other technical reasons. As it happens, the choice of inflation measure matters for the
interpretation of this episode, as alternative measures gave policymakers somewhat different
signals. Notably, core PCE inflation for 2003 was initially reported, in the first quarter of 2004,
as having slowed to about 1 percent, and it appeared to be on a steep downward trajectory.7
These data heightened concerns about deflation on the FOMC. In contrast, the CPI data
released at the same time showed core inflation for 2003 of about 2 percent. In this case,
data revisions ultimately raised estimates of PCE inflation for that period, implying that
deflation was less of a risk than was thought at the time. But that such revisions would occur
could not be known in advance, and policy decisions, of course, must be made based on the
information available at the time.
For my purposes today, however, the most significant concern regarding the use of the
standard Taylor rule as a policy benchmark is its implication that monetary policy should
depend on currently observed values of inflation and output. In particular, the Taylor rule
recommendation shown in Slide 3 relates the prescribed policy interest rate to the inflation
rate and output gap that correspond to the same quarter in which the policy decision was
made.8 However, because monetary policy works with a lag, effective monetary policy must
forecast
take into account the values of the goal variables, rather than the current values.
Indeed, in that spirit, the FOMC issues regular economic projections, and these projections
have been shown to have an important influence on policy decisions (Orphanides and
Wieland, 2008).
The distinction between current and forecast values does not always matter much, as (for
example) high levels of inflation or output today may signal high levels of those variables in
the future. However, over the past decade, the distinction between current and forecast
inflation has been an important one. On several occasions during this period, surges in
energy prices led to increases in overall inflation. According to the standard Taylor rule,
whose policy prescription depends on the current value of inflation, these episodes should
have led to a significant tightening of monetary policy. However, both the FOMC and private
forecasters expected these increases in energy prices to subside - correctly, as it turned
forecasts
out - and therefore did not much adjust their medium-term for inflation.
Consequently, policy was not tightened as much as would have been called for by the
standard Taylor rule. Put another way, the standard Taylor rule makes no distinction between
increases in inflation expected to be temporary and those expected to be longer lasting. In
practice, however, policymakers have responded less to increases in inflation that they
expect to be temporary, a reasonable strategy given that monetary policy affects inflation
only with a significant lag.
Slide 4 shows the quantitative implications of this point. The actual paths of the policy rate, in
blue, and the policy prescription implied by the standard Taylor rule, the dashed red line, are
the same as in Slide 3. Also shown, as a dotted green line, is the monetary policy path
prescribed by an alternative version of the Taylor rule that replaces the current rate of
inflation on the right-hand side with a forecast of inflation over the current and subsequent
three quarters. Forecasts are those that were actually made in real time, that is, at the time at
which the corresponding policy rate was chosen. For the period through 2004, these
forecasts are the staff forecasts (the so-called Greenbook forecasts) that were prepared for
each policy meeting. Because Greenbook forecasts for the period after 2004 are not yet
publicly available, from 2005 on the forecasts are constructed from the publicly released,
contemporaneous projections of FOMC participants, using methods developed by
Athanasios Orphanides and Volker Wieland (2008).9 In addition, consistent with the practices
of the FOMC, inflation is measured by the PCE price index as was available in real time,
instead of by the CPI.10
As Slide 4 shows, the alternative Taylor rule prescribes a path for policy that is much closer
to that followed throughout the decade, including recent years. In other words, when one
takes into account that policymakers should and do respond differently to temporary and
longer-lasting changes in inflation, monetary policy following the 2001 recession appears to
have been reasonably appropriate, at least in relation to a simple policy rule.
Which version of the Taylor rule - the standard version, that uses current values of inflation,
or the alternative version, that employs inflation forecasts - is the more reliable guide? I have
explained my preference for using inflation forecasts rather than actual inflation in the policy
rule: Monetary policy works with a lag, and therefore policy decisions must be forward
looking. One might still prefer the simplicity of the standard Taylor rule that uses current
inflation values. However, note from Slide 4 that a proponent of the standard rule would have
recommended that the FOMC raise the policy rate to a range of 7 to 8 percent through the
first three quarters of 2008, just after the recession peak and just before the intensification of
the financial crisis in September and October - a policy decision that probably would not
have garnered much support among monetary specialists. In contrast, Slide 4 shows that the
version of the Taylor rule based on forecast inflation (in green dots) explains both the course
of monetary policy earlier in the past decade as well as the decision not to respond
aggressively to what did in fact turn out to be a temporary surge in inflation in 2008. This
comparison suggests that the Taylor rule using forecast inflation is a more useful benchmark,
both as a description of recent FOMC behavior and as a guide to appropriate policy.
Although monetary policy from 2002 to 2006 appears to have been reasonably consistent
with the Federal Reserve's mandated goals of maximum sustainable employment and price
stability, we have not yet addressed the possibility that accommodative policies - though
perhaps appropriate for achieving medium-term inflation and output goals - inadvertently
contributed to the housing bubble. I turn now to that question.
Monetary policy and the housing bubble
To set the stage for the discussion, Slide 5 shows the annual increase in nominal house
prices from 1978 to the present.11 After some years of slow growth, U.S. house prices began
to rise more rapidly in the late 1990s. Prices grew at a 7 to 8 percent annual rate in 1998 and
1999, and in the 9 to 11 percent range from 2000 to 2003. Thus, the beginning of the run-up
in housing prices predates the period of highly accommodative monetary policy. Shiller
(2007) dates the beginning of the boom in 1998. On the other hand, the most rapid price
gains were in 2004 and 2005, when the annual rate of house price appreciation was between
15 and 17 percent. Thus, the timing of the housing bubble does not rule out some
contribution from monetary policy.
To try to assess the importance of that possible contribution, in the remainder of my remarks
I will consider briefly two related questions. First, the cumulative increase in housing prices
shown in Slide 5 is quite large. Can accommodative monetary policies during this period
reasonably account for the magnitude of the increase in house prices that we observed? If
not, what does account for it? Second, house prices rose significantly during this period in
many industrialized countries, not just in the United States. If monetary policy was an
important source of house price appreciation in the United States, it seems reasonable to
expect that, in an international comparison, countries with easier monetary policies should
have been more likely to have significant rises in house prices as well. Is that the case?
With respect to the magnitude of house-price increases: Economists who have investigated
the issue have generally found that, based on historical relationships, only a small portion of
the increase in house prices earlier this decade can be attributed to the stance of U.S.
monetary policy.12 This conclusion has been reached using both econometric models and
purely statistical analyses that make no use of economic theory.
11
These data are based on repeat sales of specific homes, which helps to correct for changes in the
composition of home sales, and include information on homes financed outside of the government-sponsored
enterprises, Fannie Mae and Freddie Mac.
An important, and perhaps underappreciated, issue is that measurement of house prices has improved
considerably since the early part of the past decade. The LoanPerformance index on which Slide 5 is based
corrects for changes in the composition of sales through the use of repeat sales, as noted in the text. During
the first half of the past decade, however, the only publicly available house price indexes making that
important correction were based on data taken from mortgages purchased by the government-sponsored
enterprises, Fannie Mae and Freddie Mac. However, because they were based on homes purchased using
so-called conforming mortgages, these indexes missed price movements in many houses financed with
jumbo, alt-A, and subprime mortgages. See Dokko and others (2009).
12
See, for example, Del Negro and Otrok (2007), Jarocinski and Smets (2008), Edge, Kiley, and Laforte (2009),
and Iacoviello and Neri (forthcoming).
BIS Review 1/2010
To demonstrate this finding in a simple way, I will use a statistical model developed by
Federal Reserve Board researchers that summarizes the historical relationships among key
macroeconomic indicators, house prices, and monetary policy (Dokko and others, 2009). The
statistical technique employed in this model, known as vector autoregression, is familiar to
econometricians who seek to analyze the joint evolution of a collection of data series over
time. The model incorporates seven variables, including measures of economic growth,
inflation, unemployment, residential investment, house prices, and the federal funds rate, and
it is estimated using data from 1977 to 2002.13 For our purposes, the value of such a model
is that it can be used to predict the behavior of any of the variables being studied, assuming
that historical relationships hold and that the other variables in the system take on their
actual historical values.
Slide 6 illustrates the application of this procedure to the federal funds rate and housing
prices over the period from 2003 to 2008. In the left panel of the figure, the solid line shows
the actual history of the federal funds rate. The shaded area in the figure is constructed using
the results of the statistical model; it shows the range of possible outcomes that would be
considered "normal" for the federal funds rate, assuming that the other six variables included
in the model took their actual values during the years 2003 through 2008. Values of the
federal funds rate that fall in the shaded area are relatively "close to" (technically, within
2 standard deviations of) the corresponding forecast values. In line with our earlier
discussion, the left panel of the figure suggests that, although monetary policy during the
period following the 2001 recession was accommodative, it was not inconsistent with the
historical experience, given the macroeconomic environment of the time.
The right panel of the figure shows the forecast behavior of house prices during the recent
period, taking as given macroeconomic conditions and the actual path of the federal funds
rate. As you can see, the rise in house prices falls well outside the predictions of the model.
Thus, when historical relationships are taken into account, it is difficult to ascribe the house
price bubble either to monetary policy or to the broader macroeconomic environment.
A possible objection to this conclusion is that, because of changes in methods of housing
finance, the responsiveness of house prices to monetary policy may have been different in
the past decade than it was in the 1980s and 1990s. For example, during 2003 and 2004,
about one-third of mortgage applications were for adjustable-rate mortgage (ARM) products.
Low policy rates feed through to monthly mortgage payments more directly when the
mortgage interest rate is adjustable and tied to short-term rates. This linkage could
rationalize a stronger effect of monetary policy on house prices in the more recent period
(Iacoviello and Neri, forthcoming).
Some evidence on this question is provided in Slide 7, which shows illustrative initial monthly
mortgage payments for a median-priced house for different types of mortgages.14 The
interest rates used in calculating these payments are actual averages for prime borrowers for
the period from 2003 to 2006, as provided by Freddie Mac. A comparison of the initial
monthly payment for a fixed-rate 30-year mortgage and an ARM shows that the ARM
payment is about 16 percent lower, a consequential but not dramatic difference. The ARM
payment is not substantially lower than the fixed-rate payment because it includes
amortization of principal and a spread over the index interest rate.15 Moreover, less
accommodative monetary policy would not have had a substantial effect on ARM payments.
Using the Board's principal macroeconometric model, staff simulated the effects on the
economy and on mortgage rates of a monetary policy that followed the original 1993 Taylor
rule, taking into account the feedback effects from tighter policy to the economy.16 Under this
scenario, they found that the initial ARM rate would have been about 0.71 percentage point
higher than in the baseline and that the initial monthly payment for an ARM borrower would
have increased by only about $75. This result does not suggest that moderately tighter
monetary policy would have dissuaded many potential ARM borrowers.
Slide 7 also shows initial monthly payments for some alternative types of variable-rate
mortgages, including interest-only ARMs, long-amortization ARMs, negative amortization
ARMs (in which the initial payment does not even cover interest costs), and pay-option
ARMs (which give the borrower considerable flexibility regarding the size of monthly
payments in the early stages of the contract). These more exotic mortgages show much
more significant reductions in the initial monthly payment than could be obtained through a
standard ARM. Clearly, for lenders and borrowers focused on minimizing the initial payment,
the choice of mortgage type was far more important than the level of short-term interest
rates.
The availability of these alternative mortgage products proved to be quite important and, as
many have recognized, is likely a key explanation of the housing bubble. Slide 8 shows the
percentage of variable-rate mortgages originated with various exotic features, beginning in
2000. As you can see, the use of these nonstandard features increased rapidly from early in
the decade through 2005 or 2006. Because such features are presumably not appropriate for
many borrowers, Slide 8 is evidence of a protracted deterioration in mortgage underwriting
standards, which was further exacerbated by practices such as the use of no-documentation
loans. The picture that emerges is consistent with many accounts of the period: At some
point, both lenders and borrowers became convinced that house prices would only go up.
Borrowers chose, and were extended, mortgages that they could not be expected to service
in the longer term. They were provided these loans on the expectation that accumulating
home equity would soon allow refinancing into more sustainable mortgages. For a time,
rising house prices became a self-fulfilling prophecy, but ultimately, further appreciation could
not be sustained and house prices collapsed. This description suggests that regulatory and
supervisory policies, rather than monetary policies, would have been more effective means
of addressing the run-up in house prices. I will return to this point in my conclusion.
Let me turn now to the international evidence on the link between monetary policy and house
price appreciation. Some cross-country evidence on this link is shown in Slide 9. The figure
is drawn from a recent study of 20 industrial countries by the International Monetary Fund
(IMF) (Fatás and others, 2009) and replicated by Board staff. The vertical axis of the figure
shows the change in real (inflation-adjusted) house prices in each country from the fourth
quarter of 2001 until the third quarter of 2006, a period that spans the sharpest period of
price appreciation in most countries. Countries represented by diamonds that are further
"north" in Slide 9 had relatively greater house price appreciation over this period. You can
see from the figure that house price appreciation in the United States, though of course large
in absolute terms, was actually less than that in the majority of countries in the sample.
The horizontal axis of the figure, following the IMF study, shows the degree of monetary
policy ease or tightness in each country, measured by the average deviation of policy in each
country from the prescriptions of a standard version of the Taylor rule over the corresponding
period. Countries shown further to the left in the figure had more accommodative monetary
policies over the period, relative to the predictions of the Taylor rule. The United States is
shown as having a relatively accommodative policy, as you can see; however, that
conclusion is driven in part by the use of current rather than forecast inflation in the Taylor
rule, the point I discussed earlier. Interestingly, essentially all of these countries had
monetary policies easier than that prescribed by the Taylor rule, as shown by the fact that
every country is situated on or to the left of the vertical axis in the figure.17
As Slide 9 shows, the relationship between the stance of monetary policy and house price
appreciation across countries is quite weak. For example, 11 of the 20 countries in the
sample had both tighter monetary policies, relative to the standard Taylor-rule prescriptions,
and greater house price appreciation than the United States. The overall relationship
between house prices and monetary policy, shown by the solid line, has the expected slope
(tighter policy is associated with somewhat slower house price appreciation). However, the
relationship is statistically insignificant and economically weak; moreover, monetary policy
differences explain only about 5 percent of the variability in house price appreciation across
countries.
What does explain the variability in house price appreciation across countries? In previous
remarks I have pointed out that capital inflows from emergi