As I have mentioned here in the past there is reason to take seriously the view that the “one size fits all” monetary policy of the ECB contributed to the disparate performances of Eurozone members during both the housing boom and subsequent recession (specifically, see here, here, and here for posts on ECB policy and Ireland). While much of my attention has recently focused on the role of the ECB during the recession, there is also reason to believe that monetary policy contributed to the housing boom.
In this regard, John Taylor recently posted a nice graph that relates the change in housing investment among Eurozone members to the sum of the differences between the interest rate target implied by the Taylor rule and the actual policy rate. The graph is re-produced below.
While I am not an outright advocate of a Taylor rule, this does provide further credence to the view that monetary policy contributed to the housing boom in the Eurozone.
(Quick note: Taylor’s graph initially appeared in his book Getting Off Track, which was published two years ago.)
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