Monetary Policy and Housing Overvaluation
IMF Working Papers, October 3, 2025
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Bibliographic details
- Authors: Nina Biljanovska, Eduardo Espuny Diaz, Amir Kermani, Rui Mano
- Published: October 3, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229027779.001
Authors and publication
- By Nina Biljanovska, Eduardo Espuny Diaz, Amir Kermani, Rui Mano
- October 3, 2025
- IMF Working Papers, Working Paper No. 2025/207
- Pages: 43
- Volume: 2025
- Issue: 207
- DOI: https://doi.org/10.5089/9798229027779.001
- Stock No: WPIEA2025207
- ISBN: 9798229027779
- ISSN: 1018-5941
Research question and measurement
- Research question:
- How does housing market overvaluation affect the transmission of monetary policy?
- Key measure of overvaluation:
- Price-to-rent ratio and its deviations from long-term trends.
- Data and identification:
- U.S. metropolitan-level data.
- Three measures of monetary policy shocks.
Main empirical findings
- House price response:
- House prices respond more strongly to policy rate changes in overvalued markets.
- Buyer heterogeneity and investor demand:
- Investor demand, proxied by non-owner-occupied purchases, declines more sharply after monetary tightening in overvalued markets.
- Consistency with theory:
- Results are consistent with models of extrapolative beliefs.
- Policy role implication:
- Monetary policy can serve a stabilizing role during housing booms.
Subject areas and keywords
- Subject: Asset bubbles, Asset prices, Central bank policy rate, Financial crises, Financial services, Housing, Housing prices, National accounts, Prices
- Keywords: Asset bubbles, Asset prices, Central bank policy rate, house price expectation, House Price Expectations, Housing, housing market overvaluation, housing overvaluation, Housing prices, interaction term, Monetary Policy, monetary policy shock, monetary policy transmission, Overvalued Housing Markets
Summary of contributions
- Establishes a link between local housing overvaluation (price-to-rent deviations) and heterogeneous monetary policy transmission across U.S. metropolitan areas.
- Provides evidence that investor-driven segments of the market are particularly sensitive to policy tightening in overvalued contexts.
- Suggests that countercyclical monetary policy can mitigate overheated housing markets through differential effects on investor demand and prices.
Source: IMF Working Paper "Monetary Policy and Housing Overvaluation", Nina Biljanovska, Eduardo Espuny Diaz, Amir Kermani, Rui Mano, October 3, 2025, Working Paper No. 2025/207, DOI: https://doi.org/10.5089/9798229027779.001
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- Working Paper