What Role Did the Setting of Monetary Policy Play in The Housing Market development?
It’s obvious that whenever a disaster struck, there must be a scape-goat. In this scenario, regarding monetary policy, every Tom, Dick and Harry wants to know and as well want to hold someone responsible for whatever that goes wrong. It’s an obvious reason and impetus that has been the basis of attacks on government policy by the mainstream economists, looking at it from a different perspective, it’s vividly clear that investment in residences in the U.S between 1974 to 2002 had an averaged around 4.5 per cent of GDP. However, from 2002 the shares rose to 6.25 of GDP which they practically say was 40 percent above the average level and as well the highest share in a half century. According to the Federal Reserve, the strength in housing demand created a large bubble in house price that amount to an average annual increase between 2003 and 2005 of 12.5 per cent. Consequentially, its collapse began in 2006 and not yet in reverse, and they went further to juxtapose that monetary policy was accommodative following the 2001 recession. The target federal funds rate fell from 6.50% in December 2000 to 1.75% in December 2001 and in June in 2003 it fell to 1.00%. The nominal Federal funds rate level at this period reached a low that had not been since the 1950s (Bill, 2009).
Questionably, were this two development closely related in any way? What actuall...
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...ervation, and according to what I read in regard to this issue, I will emphatically concurred that the role played by the monetary policy was well aligned with the goals of the policy makers and was not the primary contributing factor to extra-ordinary strength in the housing markets. It’s a fact that this study only confined to the U.S. Unforgettably, numerous countries’ economies experienced some sort of boom and bust as well in house prices apart from the U.S. and were supported by fluctuating of laxity in lending policy by banks. Countries, such as Spain and the United Kingdom that is even having a higher growth rates at property price than in the U.S. (Dokko, 2009)
Bill. (2009). Monetary policy was not to blame. http://bilbo.economicoutlook.net/blog/.
Dokko, J. V. (2009). Monetary Policy and the Housing Bubble. Finance and Economics Discussion Series.
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