The Analysis of Effect of The Monetary Policy on House Price Bubble: A Cross-Country Study

Cycles fluctuations in housing investment and national economy, variation in consumers and producers behavior, deviation in allocation of economic resources, the aggravation of capital transfer in asset market, the variation of income distribution pattern and imbalance in resource and expenses are the consequences of fluctuations in housing prices. These consequences and its control and recognition have been an important subject on economics policy in recent decades. Macroeconomic and monetary policy variables have significantly affect on housing prices. In this paper we analyze the effect of monetary policy on housing prices bubble and we use panel data method with annual data from (1991-2004) for 18 countries.We use price-to-rent ratio approach to calculate house price bubble. Our results indicate that monetary policy and asset price variables are effective variable on housing bubble. Monetary policy variables have the most important effect on housing price and bubble formation in Iran and countries that have high price-to-rent ratio.