estimating the impact of monetary policy shocks on different housing indicators

Abstract. This project uses a Bayesian SVAR approach to estimate the effects of domestic and foreign monetary policy shocks on housing prices and the level of new housing construction in Australia. The identification relies on imposing exclusion-restrictions and the estimation process follows the @waggoner2003a algorithm using the Gibbs sampler. I build three extensions of the baseline model – in the first two, I impose different types of hyperparameter prior distributions and estimate the hyperparameters of the priors of the model, while I incorporate common stochastic volatility in the third extension. I find that a positive domestic monetary policy shock reduces both the number of new houses and housing prices, while a positive foreign (US) monetary policy shock reduces the number of new houses but increases housing prices.

Keywords. bsvars, impulse responses, quarto, R, housing price index, monetary policy shocks, stochastic volatility, normal-gamma mixture prior, normal-inverse gamma prior.

Project is available here.