Housing and monetary policy

Research interest concerning macroeconomic linkages in housing has piqued since the Global Financial Crisis (GFC) of 2007-09. This paper documents evidence of such linkage in the Korean context derived from a DSGE(Dynamic Stochastic General Equilibrium) model that controls endogenous relationships between housing price and key macroeconomic variables. In particular, there are two analytical issues in our theoretical and empirical investigation: (1) the intra-temporal (or single-period) substitution between housing and non-housing consumption and (2) the stabilization effect of monetary policy from two alternative policy rules – a conventional Taylor rule that does not consider housing price vs. a modified Taylor rule that does. The results show that: (1) housing and non-housing consumption in Korea are complements, rather than substitutes, implying a positive wealth effect in that a rise in one variable causes the same direction in the other and (The rest omitted)