Essays On Housing And Monetary Policy

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Essays on Housing and Monetary Policy

Author : Min-Ho Nam
Publisher :
ISBN 13 :
Total Pages : 398 pages
Book Rating : 4.:/5 (857 download)

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Book Synopsis Essays on Housing and Monetary Policy by : Min-Ho Nam

Download or read book Essays on Housing and Monetary Policy written by Min-Ho Nam and published by . This book was released on 2013 with total page 398 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis, motivated by my reflections about the failings of monetary policy implementation as a cause of the sub-prime crisis, attempts to answer the following inquiries: (i) whether interest rates have played a major role in generating the house price fluctuations in the U.S., (ii) what are the effects of accommodative monetary policy on the economy given banks' excessive risk-taking, and (iii) whether an optimal monetary policy rule can be found for curbing credit-driven economic volatilities in the model economy with unconventional transmission channels operating. By using a decomposition technique and regression analysis, it can be shown that short-term interest rates exert the most potent influence on the evolution of the volatile components of housing prices. One possible explanation for this is that low policy rates for a prolonged period tend to encourage bankers to take on more risk in lending. This transmission channel, labelled as the risk-taking channel, accounts for the gap to some extent between the forecast and the actual impact of monetary policy on the housing market and the overall economy. A looser monetary policy stance can also shift the preference of economic agents toward housing as theoretically and empirically corroborated in the context of choice between durable and nondurable goods. This transmission route is termed the preference channel. If these two channels are operative in the economy, policy makers need to react aggressively to rapid credit growth in order to stabilize the paths of housing prices and output. These findings provide meaningful implications for monetary policy implementation. First of all, central bankers should strive to identify in a timely fashion newly emerging and state-dependent transmission channels of monetary policy, and accurately assess the impact of policy decisions transmitted through these channels. Secondly, the intervention of central banks in the credit or housing market by adjusting policy rates can be optimal, relative to inaction, in circumstances where banks' risk-taking and the preference for housing are overly exuberant.

Essays on Interest Rates and the Housing Market

Author : Roberto Maria Croce
Publisher :
ISBN 13 :
Total Pages : 99 pages
Book Rating : 4.:/5 (746 download)

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Download or read book Essays on Interest Rates and the Housing Market written by Roberto Maria Croce and published by . This book was released on 2011 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: In the first essay of this dissertation, "Monetary Policy and the Housing Cycle," I investigate the role of monetary policy in a housing boom that precipitated the U.S. financial crisis of 2007. I find expansionary policy between 2002 and 2005 accounts for about 50% of the peak deviation of real residential investment from its long-run trend, which occurred in the second quarter of 2005. To determine if monetary policy was a contributor to the housing boom I estimate a large dynamic stochastic general equilibrium model (DSGE) to fit the economy in several different time periods. I mathematically isolate a series of changes in the Fed Funds rate that are statistically unrelated to changes in the macroeconomy and classify these deviations as a measure of monetary policy. The magnitude of the monetary policy series is relatively small during the housing boom but explains half of the of the 2005 peak in residential investment because of inertia in the Fed Funds rate.

Essays on Housing, Unemployment and Monetary Policy

Author : Ejindu Ume
Publisher :
ISBN 13 :
Total Pages : 91 pages
Book Rating : 4.:/5 (88 download)

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Download or read book Essays on Housing, Unemployment and Monetary Policy written by Ejindu Ume and published by . This book was released on 2014 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I study the interconnections between the housing market and labor market, and the link between monetary policy and housing market activity. In the first chapter, I focus on the interplay between the housing and labor market. To do so, I construct a model of search and bargaining across two different markets: the labor market and the housing market. The model highlights that housing prices and frictions in the housing market have a profound impact on labor market activity through the desire of workers to eventually purchase a home, the "American Dream." The model also reveals that labor market frictions can impact housing market activity. I also perform a calibration exercise to evaluate economic activity in general equilibrium. I find that frictions in the housing market generate strong negative external effects on the labor market. More specifically, a tighter housing market is associated with higher unemployment rates and less job creation. Consequently, my findings suggest that policymakers should be very careful in implementing policies targeted towards housing -- housing markets are likely to generate significant external effects to other sectors of the economy, especially the labor market. To study the effects of monetary policy on housing market activity I develop an overlapping generations model in which housing is traded across generations of individuals. Incomplete information leads to a transactions role for money so that monetary policy can be effectively studied. Moreover, individuals face liquidity risk which interferes with their ability to accumulate housing wealth. Contrary to the existing literature, I demonstrate that it is important to disaggregate fixed investment between the residential and non-residential sectors. In particular, I find the effects of monetary policy are asymmetric across the components of the overall capital stock. I conclude this chapter with a policy experiment studying how optimal monetary policy depends on housing market fundamentals. In response to adverse supply conditions in the housing sector, monetary policy should be more aggressive in order to promote residential investment and the housing stock. However, monetary policy should be conservative in order to limit exposure to risk if fundamentals favor housing demand. The third chapter is an empirical look at the relationship between monetary policy and housing market activity. I analyze and quantify the effects of monetary policy on residential investment, housing starts, new private housing permits and new single family houses sold. To conduct the analysis I estimate a vector autoregression model (VAR) where the monetary policy shock is identified using sign restrictions. No restrictions are imposed on the variables of interest, however, in response to a monetary policy shock I impose sign restrictions on the impulse responses of price, output, reserves and the federal funds rate. I find that a contractionary monetary policy shock reduces housing market activity for up to a year after the shock. Interestingly, 2 to 3 years after the economy contracts, activity in the housing sector reverses course. The findings suggest that once the economy contracts the Federal Reserve Bank reverses course by lowering the federal funds rate, and this policy reversal stimulates housing market activity.

Housing and Monetary Policy

Author : Clara Wolf
Publisher :
ISBN 13 :
Total Pages : 170 pages
Book Rating : 4.:/5 (1 download)

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Book Synopsis Housing and Monetary Policy by : Clara Wolf

Download or read book Housing and Monetary Policy written by Clara Wolf and published by . This book was released on 2016 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates heterogeneous topics since it is related to both housing economics and monetary economics, and uses various tools including theoretical modeling, microeconomic policy evaluation and macroeconomic empirical approach. It is constituted of three chapters. The first one, co-authored with Eric Monnet, is interested in the relationship between demographic changes within countries and housing investment. The second one, co-authored with Guillaume Chapelle and Benjamin Vignolles, assesses the impact of a housing tax credit on several dimensions of the housing market. Finally, the third one studies how monetary policy should react to capital inflows when there are frictions on the financial market.

Essays in Macroeconomics

Author : Hamza Polattimur
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (958 download)

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Download or read book Essays in Macroeconomics written by Hamza Polattimur and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Essays on Monetary Policy, Credit and Housing

Author : Aristotelis Margaris
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (14 download)

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Book Synopsis Essays on Monetary Policy, Credit and Housing by : Aristotelis Margaris

Download or read book Essays on Monetary Policy, Credit and Housing written by Aristotelis Margaris and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Essays on Monetary Policy, Household Expectations, and Housing Prices

Author : Shihan Xie
Publisher :
ISBN 13 :
Total Pages : 119 pages
Book Rating : 4.:/5 (122 download)

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Book Synopsis Essays on Monetary Policy, Household Expectations, and Housing Prices by : Shihan Xie

Download or read book Essays on Monetary Policy, Household Expectations, and Housing Prices written by Shihan Xie and published by . This book was released on 2020 with total page 119 pages. Available in PDF, EPUB and Kindle. Book excerpt: Monetary policy in the U.S. has changed substantially in the past few decades. This thesis seeks to understand the effects of monetary policy through household expectations and housing prices. The first chapter proposes and estimates a dynamic model of household inflation expectations. The information flow constraint of the household leads to costly information monitoring. Households use a Bayesian learning model to form and update inflation expectations. The model identifies and corrects for sizable reporting and sampling errors prevalent in household surveys. The estimates show that better-educated households track inflation more closely and report their expectations more accurately. Household inflation expectations are less responsive to changes in the inflation target after the Great Recession. Model-implied household inflation expectations improve the fit of the expectation-augmented Phillips curve. Inattention from households makes it costlier for the Fed to lower inflation than would be the case if everyone is perfectly informed. The second chapter examines the differential effect of monetary policy shocks on U.S. local housing markets. By exploiting the heterogeneity in housing supply elasticity, I provide estimates of local housing price responses to monetary policy shocks in a large sample of metropolitan statistical areas. Given an expansionary shock that decreases the Federal Funds rate by 100 basis points, housing prices increase by 7.2% in cities with a highly inelastic housing supply (e.g., San Francisco), but by only 1.0% in cities with a very elastic housing supply (e.g., Iowa City) at the two-year horizon. To understand the monetary policy transmission mechanism in the housing market, I develop and estimate a structural model of the housing price with information friction. The third chapter surveys a number of important methods on the identification of monetary policy shocks and compares their estimated impacts on output, inflation and unemployment rate for pre- and post-1984 periods. In particular, identification using monetary SVAR or Romer-Romer method suggests substantial changes in the effects of monetary policy shocks. In contrast, the FAVAR method provides relatively consistent estimation for both periods. Tests for structural breaks point to parameter instability during 1979-1984. Such instability persists after accounting for GARCH effects.

Essays on Monetary Policy

Author : Omer Bayar
Publisher :
ISBN 13 :
Total Pages : 72 pages
Book Rating : 4.:/5 (665 download)

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Download or read book Essays on Monetary Policy written by Omer Bayar and published by . This book was released on 2010 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: Central banks use a series of relatively small interest rate changes in adjusting their monetary policy stance. This persistence in interest rate changes is well documented by empirical monetary policy reaction functions that feature a large estimated coefficient for the lagged interest rate. The two hypotheses that explain the size of this large estimated coefficient are monetary policy inertia and serially correlated macro shocks. In the first part of my dissertation, I show that the effect of inertia on the Federal Reserve's monthly funds rate adjustment is only moderate, and smaller than suggested by previous studies. In the second part, I present evidence that the temporal aggregation of interest rates puts an upward bias on the size of the estimated coefficient for the lagged interest rate. The third part of my dissertation is inspired by recent developments in the housing market and the resulting effect on the overall economy. In this third essay, we show that high loan-to-value mortgage borrowing reduces the effectiveness of monetary policy.

Essays on Monetary Policy and Asset Prices

Author : Jong Chil Son
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (69 download)

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Download or read book Essays on Monetary Policy and Asset Prices written by Jong Chil Son and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent financial and economic turmoil driven by housing market has led the economists to refocus on the issue about monetary policy and asset price, especially housing price. In this dissertation I investigate the various relationships between monetary policy and asset prices in U.S. economy through steady state Bayesian VAR (SS BVAR) and revised Taylor-typed interest rate rule (Forward-looking rule) based on Generalized Method of Moments (GMM) methodology. In chapter II, steady state Bayesian VAR (SS BVAR) methodology is introduced and multi step-ahead forecasts are executed. Upon usual squared error loss methodology the forecasting performances of SS BVAR are evaluated in comparison with standard BVAR and conventional VAR. Equal predictive ability tests following Giacomini and White (2006) verify that the SS BVAR is superior in forecasting power especially in long-horizons. In chapter III, identification issue involving housing sector is explored through two different ways: economic theory-based approach and algorithms of inductive causations. Despite the different approaches the housing sector0́9s specifications are somewhat similar. Impulse response analyses demonstrate that monetary shock to housing price is relatively smaller, less significant, and less lasting when compared to Choleski identification. Also historical decomposition and conditional forecast analyses indicate that the housing price shock itself is crucial in accounting the sharp increase and sudden drop of housing price since 2003. Upon the estimated evidences I conjecture that there are much uncertainty between monetary policy and housing price, recalling the consideration of institutional factors when trying to accounting housing sectors. In chapter IV, following Dupor and Conley (2004), I explore how Fed responds to stock price and inflation movements differently across high and low inflation sub-periods. Replicated linear estimation results of Dupor and Conley (2004)0́9s indicate that Fed raises its target interest rate responding to stock price gap with statistical significance. Linear estimation results, however, are not robust to small change of chosen breakpoint especially in inflation coefficient. So I construct nonlinear model as an alternative way to relax this problem and carry out test of structural change with the nonlinear framework. Consequently both nonlinearity and structural change matter in explanation of Fed0́9s behavior in this type of reaction function analysis. Given structural change, inflation coefficients movement shows that Fed has responded to expected inflation pressure nonlinearly across sub-period, while stock price gap coefficient shows explicit break around early 0́990 in line with Dupor and Conley (2004)0́9s finding.

Essays on Housing Policy

Author : J. B. Cullingworth
Publisher : Taylor & Francis
ISBN 13 : 1000296660
Total Pages : 209 pages
Book Rating : 4.0/5 (2 download)

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Book Synopsis Essays on Housing Policy by : J. B. Cullingworth

Download or read book Essays on Housing Policy written by J. B. Cullingworth and published by Taylor & Francis. This book was released on 2021-03-23 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: Originally published in 1979, these essays provide a guide to the labyrinth of issues which together made up ‘housing policy’ in the late 20th Century. The focus is on the practical and political difficulties of devising measures which meet policy objectives – difficulties which are just as prevalent in the 21st Century. The search for ‘comprehensive strategies’ is shown to be a vain one: given the number of relevant issues and their complexity, only an incremental approach is practicable. Major issues are discussed in the context of an analysis of the institutional, historical and financial framework within which housing policy is formulated and operated.

Monetary Policy and the Housing Bubble

Author : Jane Dokko
Publisher :
ISBN 13 :
Total Pages : 76 pages
Book Rating : 4.3/5 (121 download)

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Download or read book Monetary Policy and the Housing Bubble written by Jane Dokko and published by . This book was released on 2009 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Essays on Housing and Credit Market

Author : Won Suk Chung
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.7/5 (282 download)

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Download or read book Essays on Housing and Credit Market written by Won Suk Chung and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is comprised of three chapters focusing on housing and credit market. The first and the third chapter analyze how a housing affects business cycle through lending constraints and mortgage contracts, while the second chapter investigates the decoupling credit markets by firms during the recession periods.The first chapter studies the business cycle asymmetry of consumption and house prices in the US. It shows that the credit shock leads to business cycle asymmetry of consumption and house prices, but the housing belief shock does not cause the business cycle asymmetry. In a New Keynesian model with a housing, the occasionally binding lending constraint leads to an asymmetric response of consumption and house prices to the credit supply shock, not the housing belief shock.The second chapter investigates the decoupling phenomenon between loans and corporate bonds markets during the recession periods. I show that by an expansionary monetary policy, a large firm increases long-term debt, but a small firm decreases long-term debt. A `cash-flow' constraint prevents the small firm from obtaining more loans via bank-lending following the expansionary Quantitative Easing (QE) or Corporate Credit Facility (CCF) policy. However, the large firm can issue more corporate bonds because it is not constrained by the 'cash-flow' constraint.The third chapter focuses on the responses of macro variables depending on mortgage designs: the fixed-rate mortgage (FRM) and the adjustable-rate mortgage (ARM). I show that the monetary policy effects in the ARM-economy is stronger than in the FRM-economy. The constraint switching effect of output and house prices in the ARM-economy in response to the monetary policy is greater than the one in the FRM-economy. The refinancing effect enhances the response of output in the FRM-economy due to rate incentive and cash-out incentive. However, the endogenous refinancing effect is smaller than the exogenous refinancing effect in the ARM-economy because the ARM-economy satisfies the rate incentive and the refinancing transaction costs are required.

Three Essays on Financial Markets and Monetary Policy

Author : Abeba Siraj Mussa
Publisher :
ISBN 13 :
Total Pages : 144 pages
Book Rating : 4.:/5 (742 download)

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Book Synopsis Three Essays on Financial Markets and Monetary Policy by : Abeba Siraj Mussa

Download or read book Three Essays on Financial Markets and Monetary Policy written by Abeba Siraj Mussa and published by . This book was released on 2011 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis triggered by fallout form the sub-prime mortgage market in the U.S. has led economists to focus attention on the role of monetary policy in the crisis. The question of how monetary policy affects the financial sector is the key to the current debate over the role financial stability should play in the monetary policy decisions. As a contribution to this debate, my dissertation examines the link between monetary policy and three main financial sectors-the banking sector, the stock market, anf the housing market. The first essay examines whether the Federal Open Market Committee (FOMC) responded to changes in equity prices during the period 1966-2009. I distinguish the indirect response, where the FOMC reacts to equity prices only when equity prices affect its target variables, from the direct response, where the FOMC reacts to equity prices directly regardless of their effects on the target variables. In addition, the paper models the Federal Reserve's reaction function as state dependent, hypothesizing that the FOMC may respond to changes in asset prices asymmetrically during different states of the economy. The results show that the FOMC did respond directly to equity price changes when asset prices were falling. During non-bust periods, the FOMC did not respond directly to equity prices. It used information on equity prices to forecast target variables. The second essay investigates the effect of expansionary and contractionary monetary policy on the risk taking behavior of low-capital and high-capital banks. Using quarterly data on federally insured banks spanning the period from 1991 to 2010, the paper shows that expansionary policy caused high capital banks to take more risk. Capital constrained banks were not significantly affected by expansionary monetary policy. Contractionary monetary policy, however, is not effective in affecting the risk-taking behavior of both capital-constrained and unconstrained banks. The paper, therefore, confirms the hypothesis that expansionary policy is more effective in encouraging capital unconstrained banks to invest more in risky assets. The third essay examines the role of monetary policy on housing bubbles in the last three decades. A spatial dynamic model is used to explicity account for spatial cross-section dependence in the data. Using quarterly panel data on 48 contiguous U.S. states and the District of Columbia, the paper discovers that the housing bubbles across the U.S. are mainly driven by the local or state specific factors during the period 1976-2000. However, the prolonged low interest rate since the 2001 recession contributed to the run-up in house prices acrsss states.

Essays on Macroeconometric Modelling

Author : Ioannis Chatziantoniou
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (879 download)

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Download or read book Essays on Macroeconometric Modelling written by Ioannis Chatziantoniou and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Three Essays in Housing Economics

Author : Angelina Hackmann
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Three Essays in Housing Economics by : Angelina Hackmann

Download or read book Three Essays in Housing Economics written by Angelina Hackmann and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In light of potential consequences for inequality and housing affordability, this thesis delivers a comprehensive contribution to several fields of studies related to regional housing markets. It comprises three scientific articles, which contribute to understanding the regional heterogeneity in housing markets, its origin as well as its implications. The first article deals with the evolutionary process of city size distributions, in particular the evolution of Zipf's law, and its implications for (sub-)urbanization processes. In he second article, the convergence process of regional housing markets and characteristics of house price convergence clubs are investigated. The third article assesses the role of regional housing markets in the transmission of monetary policy to economic activity and presents implications for regional inequality.

Essays on Monetary Policy in Developing Countries

Author : Zhandos Ybrayev
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (114 download)

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Download or read book Essays on Monetary Policy in Developing Countries written by Zhandos Ybrayev and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the effects of monetary policy on economic inequality, asset prices and unemployment in developing countries. Emerging market economies are structurally different from advanced economies as they are generally associated with greater financial frictions, underdeveloped financial markets, as well as both a high average level and unequal access to dollarized assets, among others. Thus, the study on the impact of monetary policy in emerging economies requires additional specifications. The first essay investigates the distributional consequences of monetary policy in the context of a small open economy framework. I show that wealthy households (represented by the top ten percent of the income distribution), who are more able to save in foreign currencies, gain in purchasing power of their incomes by hedging against domestic inflation. At the same time, since the poor (represented by the bottom fifty percent of the income distribution) retain larger share of liquid assets denominated in domestic currency, consequently leading them to bear a greater burden of local currency inflation. I also show that contractionary monetary policy is associated with periods of higher income inequality in emerging markets. The second essay presents a comprehensive practical analysis of Kazakhstani city-level housing prices. The key focus is to test whether there is a single, integrated Kazakhstani housing market, and hence to examine potential long-run relationships among the seven city housing prices series for which we have monthly data during the period 2014-2017. We also explore how monetary policy shifts and subsequent exchange rate shocks could affect the system of relative prices. The results obtained suggest that city-level house prices are weakly related across cities in the long run, and the interest rate channel of monetary policy currently is surprisingly weak in Kazakhstan. The third essay discusses a relatively new take on Inflation Targeting as a single-mandate monetary policy, which effectively exposes its many disadvantages. Our discussion first introduces the issues of coordination and conflict between fiscal and monetary policies. Our empirical exercise directly addresses the unemployment outcome of inflation targeting policy compared to other monetary policy settings. Our results show that while IT actually reduced the average inflation rate prior 2008 financial crisis, it has a negative effect on the unemployment rate in the longer term. The paper argues that the aggregate unemployment rate is an optimal social welfare-maximizing goal for central banks and should be used as a natural second target in a typical emerging market economy case.

Essays in Finance and Welfare

Author : Isaac Issa Hacamo
Publisher :
ISBN 13 :
Total Pages : 104 pages
Book Rating : 4.:/5 (919 download)

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Download or read book Essays in Finance and Welfare written by Isaac Issa Hacamo and published by . This book was released on 2014 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the relationship between finance and welfare, focusing on how the expansion of credit supply in the beginning of the 2000s, leading to the 2007 financial crisis, affected U.S. households. This dissertation helps advance the study of how financial policies affect households' well- being. In the first chapter, I study the effect of access to credit on family structure. There is a large debate over the welfare effects of the early 2000s housing boom and bust. One potentially important welfare effect is the impact of mortgage credit expansion on family structure. Exploiting pre-housing boom variation on the distribution of old homeowners who live alone and are older than 65, I conduct within-county analysis with zip code level data to causally identify the effect of access to credit on fertility outcomes through a channel associated with a more efficient reallocation of the existing housing stock among households. I examine two other housing channels, house wealth gains and new construction, and show that the most relevant channel is the reallocation, which allows young households to access space by either moving to larger homes or achieving homeownership earlier in their life-cycle. A one standard deviation increase in reallocation leads to a 6.4% increase in fertility from 2000 to 2006. The same increase in house prices leads to only a 2.7% increase, and in new construction leads to a 1.5% decline in fertility from 2000 to 2006. I estimate that approximately 500,000 babies were born between 2000 and 2006 because of the reallocation channel. In the second chapter, I study the effect of housing demand on house prices through an interest rate channel. In the last housing boom, strong house price growth only lasted until 2005. Why did house price growth slowed down in 2006? This chapter studies the effect of interest rate changes on housing demand at the end of a housing boom and the subsequent effect on house prices. I use three different proxies for housing demand, based on Google search data on search terms likely to be used during the process of purchasing a home, such as "remax", "construction", or "real estate". A one- standard deviation increase in the change in interest in purchasing a home from 2005 to 2006, measured by the Google search volume, leads to a 0.4 standard deviation increase in contemporaneous house price growth. To identify the interest rate channel, I first compute a household income threshold for each county, defined as the necessary income to afford an interest-rate-only mortgage on a county's average loan in 2005. I then exploit the slope of the county's income distribution around this affordability threshold to estimate the fraction of households that, after an increase in mortgage interest rates from 2005 to 2006, could no longer afford to pay an interest-rate-only mort- gage. I use this fraction as an instrumental variable for housing demand. The IV beta is remarkably close to the OLS beta, and confirms the large effect of housing demand on house prices in 2006 through an interest rate channel. This chapter sheds light on the transition process between the housing boom in the 2000s and the subsequent financial crisis, and contributes to a better understanding of the impact of monetary policy on housing demand and house prices at the end of a housing boom.