Heterogeneous Monetary Policy Transmission in the Housing Market
Heterogeneous Monetary Policy Transmission in the Housing Market

Author: Maria Christidou

Publisher:

Published: 2019

Total Pages: 22

ISBN-13:

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We document that the transmission of monetary policy to real house prices and housing investment is heterogeneous across the US states during the period 1983-2008 and relate this heterogeneity to various state level observable factors. We find that an expansionary monetary policy raises real house prices and residential investment at the national level, the increase being much larger for some states but smaller for others. For states with higher percentage of older people, population density, income inequality the responses are above those of the national aggregates; for states with higher poverty rates and more educated people the responses are below those of the national aggregates. Higher property tax rates are also associated with lower responses of housing investment and house prices.

The Housing Market Channel of Monetary Policy Transmission in the Euro Area
The Housing Market Channel of Monetary Policy Transmission in the Euro Area

Author: Stanimira Milcheva

Publisher:

Published: 2020

Total Pages:

ISBN-13:

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Purpose: The purpose of this paper is to explore the role of the housing market in the monetary policy transmission to consumption among euro area member states. It has been argued that the housing market in one country is then important when its mortgage market is well developed. The countries in the euro area follow unitary monetary policy; however, their housing and mortgage markets show some heterogeneity, which may lead to different policy effects on aggregate consumption through the housing market. Design/methodology/approach: The housing market can act as a channel of monetary policy shocks to household consumption through changes in house prices and residential investment - the housing market channel. The authors estimate vector auto-regressive models for each country and conduct a counterfactual analysis to disentangle the housing market channel and assess its importance across the euro area member states. Findings: The authors find little evidence for heterogeneity of the monetary policy transmission through house prices across the euro area countries. Housing market variations in the euro area seem to be better captured by changes in residential investment rather than by changes in house prices. As a result, the authors do not find significantly large house price channels. For some of the countries however, they observe a monetary policy channel through residential investment. The existence of a housing channel may depend on institutional features of both the labor market or with institutional factors capturing the degree of household debt as is the loan-to-value ratio. Originality/value: The study contributes to the existing literature by assessing whether a unitary monetary policy has a different impact on consumption across the euro area countries through their housing and mortgage markets. The authors disentangle monetary-policy-induced effects on consumption associated with variations on the housing markets due to either house price variations or residential investment changes. The authors show that the housing market can play a role in the monetary transmission mechanism even in countries with less developed mortgage markets through variations in residential investment.

One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area
One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area

Author: Giancarlo Corsetti

Publisher: International Monetary Fund

Published: 2020-06-26

Total Pages: 63

ISBN-13: 1513548743

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We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity, which we find to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. Building a small open economy model featuring a housing sector and calibrating it to Spain, we show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the responses of output and private consumption.

Monetary Policy Transmission in Emerging Markets and Developing Economies
Monetary Policy Transmission in Emerging Markets and Developing Economies

Author: Mr.Luis Brandao-Marques

Publisher: International Monetary Fund

Published: 2020-02-21

Total Pages: 54

ISBN-13: 1513529730

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Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Monetary Policy, Housing Investment, and Heterogeneous Regional Markets
Monetary Policy, Housing Investment, and Heterogeneous Regional Markets

Author: Michael C. Fratantoni

Publisher:

Published: 2015

Total Pages: 48

ISBN-13:

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This paper quantifies the importance of heterogeneity in regional housing markets for the conduct of monetary policy using a new model called an aggregation VAR (AVAR). The model integrates a national financial market with regional housing markets, imposing all exact aggregation conditions. Monetary policy is transmitted to the real economy through the mortgage rate. The AVAR model is based on linear VARs, but its aggregate impulse responses exhibit two nonlinearities: (1) time variation stemming from aggregation over heterogeneous regions, and (2) state dependence on initial economic conditions in regions. Thus, the effect of monetary policy on the real economy depends on the extent and nature of regional heterogeneity, which vary over time. Using longitudinal data for detailed U.S. regions, we estimate the effects of time variation and state dependence on the dynamic responses of the AVAR model. These estimates, and aggregation bias, provide plausible and tangible explanations for quot;long and variablequot; lags in monetary policy. As an example, we show how the AVAR model can simulate the effects of coastal housing booms on the efficacy of monetary policy.

Housing Market Heterogeneity in a Monetary Union
Housing Market Heterogeneity in a Monetary Union

Author: Margarita Rubio Sánchez

Publisher:

Published: 2009

Total Pages: 0

ISBN-13:

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This paper studies the implications of cross-country housing market heterogeneity for a monetary union, also comparing the results with a flexible exchange rate and independent monetary policy setting. I develop a two-country new Keynesian general equilibrium model with housing and collateral constraints to explore this issue. Results show that in a monetary union, consumption reacts more strongly to monetary policy shocks in countries with high loan-to-value ratios (LTVs), a high proportion of borrowers or variable-rate mortgages. As for asymmetric technology shocks, output and house prices increase by more in the country receiving the shock if it can conduct monetary policy independently. I also find that after country-specific housing price shocks consumption does not only increase in the country where the shock takes place, there is an international transmission. From a normative perspective, I conclude that housing-market homogenization in a monetary union is not beneficial per se, only when it is towards low LTVs or predominantly fixed-rate mortgages. Furthermore, I show that when there are asymmetric shocks but identical housing markets, it is beneficial to form a monetary union with respect to having a flexible exchange rate regime. However, for the examples I consider, net benefits decrease substantially if there is LTV heterogeneity and are negative under different mortgage contracts. [Resumen de autor]

House Prices and Monetary Policy in the Euro Area
House Prices and Monetary Policy in the Euro Area

Author:

Publisher:

Published: 2017

Total Pages: 39

ISBN-13: 9789289927956

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We use a Bayesian stochastic search variable selection structural VAR model to investigate the heterogeneous impact of housing demand shocks on the macro-economy and the role of house prices in the monetary policy transmission, across euro area countries. A novel set of identification restrictions, which combines zero and sign restrictions, is proposed. By exploiting the cross-sectional dimension of our data, we explore the differences in the propagation channels of house prices and monetary policy and the challenges they pose in the process of real and nominal convergence in the Eurozone. Among the main results, we find a comparatively stronger housing wealth effect on consumption in Ireland and Spainches We provide new evidence in support of the financial accelerator hypothesis, showing that house prices play an important role in the availability of loans. A significant and highly heterogeneous effect of monetary policy on house price dynamics is also documented.

Navigating the Housing Channel of Monetary Policy Across Euro Area Regions
Navigating the Housing Channel of Monetary Policy Across Euro Area Regions

Author: Niccolò Battistini

Publisher:

Published: 2022

Total Pages: 0

ISBN-13: 9789289954006

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This paper assesses the role of the housing market in the transmission of conventional and unconventional monetary policy across euro area regions. By exploiting a novel regional dataset on housing-related variables, a structural panel VAR analysis shows that monetary policy propagates effectively to economic activity and house prices, albeit in a heterogeneous fashion across regions. Although the housing channel plays a minor role in the transmission of monetary policy to the economy on average, its importance increases in the case of unconventional monetary policy. We also explore the determinants of the diverse transmis- sion of monetary policy to economic activity across regions, finding a larger impact in areas with lower labour income and more widespread homeownership. An expansionary monetary policy can thus be effective in mitigating regional inequality via its stimulus to the economy.