Houses, we have a problem!

Sammanfattning: This thesis investigated how expansionary unconventional monetary policies affect house prices in the Scandinavian countries, using quarterly data from 1995 to 2020. Unconventional monetary policy, such as quantitative easing and forward guidance, has become widely used by central banks, in order to stimulate the economy when being in a zero lower bound environment. While inflation has remained on a rather modest level, the development on the housing market has been much stronger. A Bayesian structural VAR analysis was used with two different identification methods, Cholesky decomposition and zero and sign restrictions. The instruments used to capture unconventional monetary policies were the central bank balance sheet and shadow rates. The results from a Cholesky decomposition supported the hypothesis of the thesis, i.e., unconventional monetary policy leads to inflated house prices, particularly for Sweden and Denmark. The second identification approach, zero and sign restrictions, generated no significant effect on house prices, following an unconventional monetary policy shock for the Scandinavian countries. Using VARs is very popular among academic researchers, however, the results are highly sensitive to the identification method, which was evident in this thesis.