The Role of House Prices in the Monetary Policy Transmission Mechanism in Iran:SVAR Approach and Counterfactual Simulation

Abstract

The role of house prices in transmission of the monetary shocks to consumption, as the largest component of aggregate demands, and residential investments in Iran has been studied. A structural vector autoregressive (SVAR) is developed based on 1990Q1-2009Q2 data and counterfactual simulation approach. The results show that changes in house prices can cause about 38% of the rise in consumption and about 67% of the rise in residential investment followed by a monetary shock. Therefore, house prices can be considered as an important indicator of the assessment of the effects of monetary changes on the real activity.