In recent years a number of OECD countries experienced a rapid increase in housing market activity, which coincided with a period of low real and nominal interest rates. The link between the two is intuitive: low interest rates make credit cheaper and increase the demand for housing. Some scholars argue that expansionary monetary policy has been signi cantly responsible for this low level of interest rates and the subsequent house price boom (Hume and Sentance (2009) and Taylor (2009)). Others stress the role of excessive saving in nancially underdeveloped economies which led to persistent capital in ows into rich countries and thus depressed long rates (Caballero et al (2008).
