Friday, October 19, 2007

Housing Boom Has Limited Effect on Growth


clipped from blogs.wsj.com

Frank Smets and Marek Jarocinski, economists at the European Central Bank, focus their new paper on the run-up in house prices from 2000 to 2006 and note that it can’t be explained by GDP growth over that period.

Real housing prices grew at rates above 5% after the U.S. economy slowed in 2000 and 2001, and about 10% in 2004 and 2005, far above GDP growth during the period. “We find that both housing market and monetary policy shocks explain a significant fraction of the construction and house price boom, but their effects on overall GDP growth and inflation are relatively contained,” they write in the study presented at a conference hosted by the Federal Reserve Bank of St. Louis.

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