The Relationship between Monetary Policy and the Housing Bubble

Abstract

Will monetary policy affect the price of housing and thus lead to a housing bubble? It is well known that the Fed's monetary policy decisions affect the U.S. and the world economy, guiding the direction of the economy through monetary policy adjustments. The real estate market has a huge volume and monetary policy has a profound impact on it. Loose monetary policy can lead to a boom in the real estate market, but too much of a boom can lead to a crisis. This article examines whether monetary policy affects housing bubbles by analyzing the views of Ben S. Bernanke and John B. Taylor and modeling the data to examine whether monetary policy causes housing bubbles.