The Effect of Monetary Policy on House Price Bubble in Booms and Busts Cycles in Iran

In this paper, we analyze the effect of monetary policy in house price bubble for booms and busts cycles. We use price to rate model for house price bubble calculation. Therefore, we employ ARDL model with quarterly data from (1992 - 2006) for Iran. Our results reveal the formation of bubble which differ from booms and busts cycles. The effect of monetart policy on house price bubble in booms cycles is more than busts cycles. Expansionary monetary policy makes the house price bubble in forming booms and busts cycles. Interest rate is the most important and effective variable on house bubble in boom cycle. Effect of liquidity growth rate in busts cycles is more than booms cycles. Effect of asset prices variables in busts cycles is more than booms cycles. our results indicate that monetary authority should tighten when house price bubble is inflating and it should ease when house price bubble collapses.