Page 96 - Azerbaijan State University of Economics

A.Y.Abbasov: How U.S. government expansionary monetary policy helps to lower the
interest rates of mortgages

The purpose of this project is to determine whether the expansionary monetary

policy of the government of lowering interest rates helps families repurchase or buy

new American homes. The study will determine the effect of Interest rates

(INTEREST) on Housing Market Sales (HOUSING) while holding constant the

effects of the Unemployment Rates (UNEMPLOYMENT), Gross Domestic Product

(GDP), and Vacancy Rate (VACRATE). This study uses a time-series analysis with

30 quarterly observations from Quarter One of 2004 to Quarter Two of 2011. The

model (less constants and coefficients) is:

HOUSE=INTEREST+UNEMPLOYMENT+GDP+VACRATE

The dependent variable Housing Market Sales (HOUSE) is defined as total new

houses sold in the United States in thousands (Economagic, 2011). Interest Rates

(INTEREST) is defined as interest rates on 30-year fixed rate conventional

mortgages expressed in percentage (Economagic, 2011). This variable was chosen

because the percentage of interest rate on a mortgage greatly affects a person's

decision on purchasing a home and the budget one would have to establish.

Unemployment rate (UNEMPLOYMENT) as defined by the Bureau of Labor

Statistics is the percentage rate of unemployed individuals who are willing and able

to work. This definition has had much controversy in the past couple of years and

the Bureau of Labor Statistics has expanded the unemployment definition to include

six categories of people:

1. Percentage of labor force unemployed 15 weeks or longer

2. Percentage of labor force who lost jobs or completed temporary work

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