In summary, I draw two main
conclusions from a large volume of
research on the effects of monetary
policy on house prices. Both are robust
across countries, samples,
methodologies, and other factors. First,
monetary policy actions have sizable
and significant effects on house prices in
advanced economies. That is, an increase in interest rates tends to lower real (inflation-adjusted) house
prices. Second, this reduction in house prices comes at significant costs in terms of reductions in real gross
domestic product and inflation. A typical estimate is that a 1% loss in GDP is associated with a 4%
reduction in house prices. This implies a very costly tradeoff of using monetary policy to affect house prices
when macroeconomic and financial stability goals are in conflict.