We use a structural factor-augmented vector autoregression (FAVAR) model and a large dataset of daily time series to study the impact of unconventional monetary policy on residential and non-residential real estate and related mar-kets. Our findings indicate that an expansionary unconventional monetary policy shock lowers key housing market interest rates; raises equity market returns for homebuilders and real estate investment trusts (REITs); reduces the cost to insure subprime mortgage-backed and commercial real estate debt; and lowers housing distress. Research findings also suggest that the estimated effects are generally large in magnitude and similar in size to those found for equity markets. Further, the impact of unconventional monetary policy shocks on housing markets differs in magnitude across risk-levels and US geographies. Finally, results indicate that successive rounds of monetary easing may be necessary during an extended period of economic weakness, in that the impact of an unconventional monetary shock at-tenuates rather quickly with an estimated half-life that is generally less than three months.

Abstract: Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan's performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.

Frank Smets and Oreste Tristani for helpful comments, and the NSF for research support of the second author through a grant to the NBER. The content of this document does not necessarily reflect the views of the Federal Reserve Bank of San Francisco, the Federal Reserve System, or the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at

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