Did the FED Inflate a Housing Price Bubble? A Cointegration Analysis between the 1980s and the 1990s

The aim of this work is to verify if the recent episodes of expansionary policies followed by the FED contributed to the creation a housing price bubble. This study compares two different samples, both including periods of recession followed by accommodating monetary policies. The paper showed that even though the long-run relationship between inflation and the interest rate did not change along the whole sample, suggesting an unaltered behavior of the central bank with respect to changes in inflation, the reactivity of housing prices to monetary policy has considerably augmented during the 1990s compared to the 1980s. This is interpreted as evidence that prolonged accommodating monetary policies affected the US real estate market.