The Study of Responses of Monetary Policy on to House Price Bubble in Iran

In this paper we analyze the different three responses of monetary policy to bubble in housing prices. Three monetary policy rules describe that the Ffirst alternative rule corresponds to a monetary authority that does not respond to house price inflation. The second alternative rule corresponds to a monetary authority that respond to overall house price inflation, and in third alternative is a policy in which a monetary authority responds to house pricse bubble. Wwe use an ARDL model with quarterly data for Iran. The results reveal several practical monetary policy lessons. First، a monetary authority should generally respond to house price bubble because third monetary policy rule is lessminimizes the loss function. Second، this finding holds even if a monetary authority cannot distinguish between fundamental and bubble house price behavior. Tthird,، ،our results indicate that monetary authority should tighten when house price bubbles are inflating and should ease when house price bubble collapse.