Chapter 3. THE CHANGING HOUSING CYCLE AND THE IMPLICATIONS FOR MONETARY POLICY
- International Monetary Fund. Research Dept.
- Published Date:
- April 2008
This chapter examines how innovations in housing finance systems in advanced economies over the past two decades have altered the role of the housing sector in the business cycle and in the monetary policy transmission mechanism. It concludes that these changes have broadened the spillovers from the housing sector to the rest of the economy and have amplified their impact by strengthening the role of housing as collateral. This analysis suggests that in economies with more developed mortgage markets, monetary policymakers may need to respond more aggressively to developments in the housing sector, within a risk-management approach that treats house price dynamics as one of the key factors to be considered in assessing the balance of risks to output and inflation.