Monetary Policy on Housing Bubbles

Critically assess the effects of
monetary policy on housing
bubbles

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Asset price bubble id one of the major crises which can be faced by economy of a
country and sometimes it leads to effect global economy. In the history not all bubbles are same
but the housing bubble which was faced in the US in year 2008-2009. The crises were
associated with the housing market where more than one bubble were creates such as equity
bubble. In this report a detailed discussion related with housing bumble created in Us economy is
presented, as this effected not only economy in the US but over all global economy was effected
ans that too in worse manner. In the present report the factors that lead to creation of the bubbles
and its effect on economy is presented.
MAIN BODY
Housing bubble:
This can be explained as a period of time which is faced b real estate industry where the
prices of the houses grow to above the average limit. In this case there is limit supply and high
demand of house and property and this situation goes in other direction rather than being turned
to a positive one these create a situation of creation of bubble where there is a high demand and
either less to no supply of property at all (What Caused the Housing Bubble, 2018) . When the
situation get stretched to long the bubble gets busted and results in a sharp fall in property with a
burst in the bubble price fall down to the lowest still there is no demand and high supply.
It’s hard to determine a housing bubble until it pops. The moment comes when an addition of
housing supply tumble over deprecatory demand. With a consultant in growth in demand this
situation will come sooner or later.
Monetary policy:
This can be defined as the central bank of nation which regulated and mages the liquidity
to create the economic growth. Liquidity means how much money is in the money supply which
includes credit, cash, and mutual funds in money market (Cheng, Raina and Xiong, 2014|) . The
main objectives of having monetary policy is to manage the inflation and to reduction of
unemployment. In the US central bank is the Fed Reserve which looks out formulation of all
monetary policies for the US economy. The
A major crisis:
In 2008, a major crisis was suffered by the Us economy and with a burst in the housing
bubble, problem of recession aroused and this effected the whole world as US the is most
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