The Fed’s dual shocks and the housing market

The Federal Reserve has both a monetary and an informational impact on the housing market. Using high-frequency identification, we separate monetary shocks in the conventional sense from the shocks that convey the Federal Reserve’s assessment of the economic outlook. Conventional monetary contraction reduces residential investment, home prices, and returns on Real Estate Investment Trusts (REITs). In contrast, monetary contraction that conveys positive economic information shocks triggers subsequent rises in both housing prices and residential investment, in addition to larger gains for REITs. We provide novel support from the housing market for the recent emphasis on the Fed’s role as a credible assessor of the macroeconomic outlook.