Monetary policy surprises : house prices and household credit in Norway

Abstract

In this master thesis we analyze the effects of monetary policy shocks on economic and financial variables in Norway, where we focus in particular on the responses of house prices and household credit. Our main approach involves combining the traditional structural VAR analysis with high frequency identification of policy shocks. We identify monetary policy shocks using changes in forward rate agreements over a 30-minute window surrounding policy announcements by Norges Bank, which we use as external instruments in the SVAR. The usual recursive identification of the model is rejected based on an analysis of the impulse responses and the issue of simultaneity. We find that a contractionary monetary policy shock has a large and negative impact on house prices in Norway, while the response of credit is modest and positive. We also find evidence supporting that monetary policy operates through a credit channel.