House prices, monetary policy and regional heterogeneity * Knut Are Aastveit † André K. Anundsen ‡ First Version: April, 2016 Abstract The effectiveness of monetary policy in affecting house prices depend both on the nature of the shock; expansionary versus contractionary, and on local housing mar- ket characteristics. In particular, our results suggest that monetary policy is more effective when it is expansionary and in markets with low housing supply elasticities. While expansionary and contractionary shocks have similar impacts on house prices in markets with an elastic housing supply, the effect of expansionary shocks are markedly larger than the impact of contractionary shocks in supply inelastic areas. These conclusions are drawn based on an empirical examination of the effects of exogenous monetary policy shocks on house prices using local projection methods on a panel of the 100 largest metro areas in the US over the period 1980Q1–2008Q4. Keywords: House prices; Heterogeneity; Monetary policy; Non-linearity; Supply elasticities; JEL classification: E32, E43, E52, R21, R31 ∗ This paper should not be reported as representing the views of Norges Bank. The views expressed are those of the authors and do not necessarily reflect those of Norges Bank. We thank Jean Imbs, Kevin Lansing, Juan Rubio-Ramirez and seminar participants at Norges Bank and Banque de France for useful comments. † Norges Bank, Knut-Are.Aastveit@norges-bank.no ‡ Norges Bank Andre-Kallak.Anundsen@norges-bank.no 1