House Prices, Monetary Policy and Commodities: Evidence from Australia*

Monetary policy and commodity prices are key drivers of Australian house prices, but endogeneity between these variables complicates empirical research. To address this, we use local projection methods and instrumental variables for estimation. We ﬁnd that one standard deviation expansionary monetary and commodity shocks increase house prices at peak by 1.5 percent and 1.4 percent, respectively. Using geographically disaggregated panel data, we exploit the heterogeneity in house price responses to study the diﬀerent channels through which these shocks aﬀect housing markets. We ﬁnd that both monetary policy and commodity price shocks have signiﬁcant eﬀects on housing markets through income channels.