The housing price boom of the late 1990s: Did inflation targeting matter?

Abstract

The recent boom in the housing markets of most developed economies has spurred criticism that inflation targeting central banks may have neglected the build-up of financial imbalances. This paper provides a formal empirical test of such claims, using a standard program evaluation methodology to control for a possible bias due to self-selection into inflation targeting. We consider 17 industrial economies over the period 1980–2007, among which nine countries have targeted inflation at some point. We find robust evidence of a significant positive effect of inflation targeting on real house price growth and on the house price-to-rent ratio.