The housing price bubble, the monetary policy and the foreclosure crisis in the US

This article presents a monthly vector autoregressive (VAR) model of housing prices, the federal funds rate, foreclosures, the unemployment rate and the mortgage interest rate for the United States for the period of 2000(1)--2010(8). Impulse response functions show that negative shocks to the federal funds rate increased housing prices. The interaction effect between the foreclosure rate and the housing prices shows that an initial shock to the foreclosure rate produced further increases in the foreclosure rate through a reduction in housing prices.