Asymmetric Effects of Monetary Policy on Iran Housing Market: A Nonlinear MS-VAR Approach

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Economics, Department of Economics, Qazvin Branch, Islamic Azad University, Qazvin, Iran

2 Professor of Economics, Faculty of Management and Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran

3 Assistant Professor of Economics, Qazvin Branch, Islamic Azad University, Qazvin, Iran

Abstract

Recent studies in housing market especially in the aftermath of 2007 financial crisis show that monetary policy has a main role in housing market and its impact can be asymmetric. In other words, the effect of monetary policy depends on the state of housing market and during bull and bear periods, the market can be differently affected by the monetary policy. As a result, the main objective of this paper is to investigate the asymmetric effects of monetary policy on Iran housing market using quarterly data during 1994-2017. To this end, we use the Markov Switching VAR model in which parameters change according to the phase of the housing cycle. The results suggest that monetary policy has asymmetric effects on housing market. Also, regime dependent Impulse Response Functions show that impact of monetary policy (with same sign and size) on housing market is larger in bear regime than in bull regime.

Keywords

Main Subjects


  1. Abolhasani, A., Ebrahimi, I., Pourkazemi, M. H., &  Bahraminia, E. (2016). The effect of oil shocks and monetary shocks on production and inflation in the housing sector of the Iranian economy: New Keynesian dynamic stochastic general equilibrium approach. Quarterly Journal of Economic Growth and Development Research, 25(7), 113-132 (In Persian).
  2. Afshari, Z., & Hemmati, M. (2013). Determinants of the probability of Boom-Bust cycles in the housing market. Economic Research, 55(18), 17-46 (In Persian).
  3. Asgari, H., & Almasi, E. (2011). Factors affecting the price of housing in urban areas using panel data (during the 1370 to 1385). Economics Research, 41(11), 201-224 (In Persian).
  4. Astveit, K. A., & Anundsen, A. K. (2016). Asymmetric effects of monetary policy in regional housing markets. Norges Bank working paper, No. 25/2017.
  5. Azad Chowdhury, R., & Maclennan, D. (2014). Regional house price cycles in the UK, 1978-2012: a Markov switching VAR. Journal of European Real Estate Research7(3), 345-366.
  6. Bernanke, B. S., & Gertler, M. (1995). Inside the black box: the credit channel of monetary policy transmission. Journal of Economic perspectives9(4), 27-48.
  7. Ehrmann, M., Ellison, M., & Valla, N. (2003). Regime-dependent impulse response functions in a Markov-switching vector autoregression model. Economics Letters78(3), 295-299.
  8. Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.
  9. Hamilton, J. D. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica: Journal of the Econometric Society, 357-384.
  10. Hansen, B. E., & Seo, B. (2002). Testing for two-regime threshold cointegration in vector error-correction models. Journal of econometrics110(2), 293-318.
  11. Jafari, S. A., Elmi, Z., & Hadizadeh, A. (2007). Affecting factors on house price index, Economic Research, 32(9), 31-53 (In Persian).
  12. Krolzig, H. M. (1997). Markov-switching vector autoregression. Lecture Notes in Economic and Mathematical Systems.
  13. Meltzer, A. H. (1995). Monetary, credit and (other) transmission processes: a monetarist perspective. Journal of economic perspectives9(4), 49-72.
  14. Mousavi, M., & Doroodian, H. (2015). Analyzing the determinants of housing prices in Tehran city. Quarterly Journal of Economical Modeling, 31(9), 103-127 (In Persian).
  15. Nazari, M., & Farzanegan, E. (2011). Monetary policy and housing price bubbles in Tehran. Journal of Economic Research, 45(4), 255-280 (In Persian).
  16. Nelson, E. (2003). The future of monetary aggregates in monetary policy analysis. Journal of Monetary Economics50(5), 1029-1059.
  17. Phiri, A. (2016). Asymmetric pass-through effects from monetary policy to housing prices in South Africa. MPRA Paper, No. 70258.
  18. Shahbazi, K., & Kalantari, Z. (2012).  The effects of  fiscal and monetary policies shocks on housing market variables in Iran: a SVAR approach. Journal of Economic Research and Policies, 61(20), 77-104 (In Persian).
  19. Simo-Kengne, B. D., Balcilar, M., Gupta, R., Reid, M., & Aye, G. C. (2013). Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-Switching Vector Autoregressive model. Economic Modelling32, 161-171.
  20. Sims, C. A. (1980). Macroeconomics and reality. Econometrica: Journal of the Econometric Society, 48(1),1-48.
  21. Taylor, J. B. (2007). Housing and monetary policyNBER working paper, No. 13682.
  22. Tsai, I. C. (2013). The asymmetric impacts of monetary policy on housing prices: A viewpoint of housing price rigidity. Economic Modelling31, 405-413.