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Monetary Policy Transmission and House Prices: European Cross Country Evidence

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Author Info
Kai Carstensen
Oliver Hülsewig
Timo Wollmershäuser

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Abstract

This paper explores the importance of housing and mortgage market heterogeneity in 13 European countries for the transmission of monetary policy. We use a pooled VAR model which is estimated over the period 1995-2006 to generate impulse responses of key macroeconomic variables to a monetary policy shock. We split our sample of countries into two disjoint groups according to the impact of the monetary policy shock on real house prices. Our results suggest that in countries with a more pronounced reaction of real house prices the propagation of monetary policy shocks to macroeconomic variables is amplified.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.96134.de/diw_finess_07040.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Working Paper / FINESS with number 7.4.

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Length: 34 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwfin:diwfin07040

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Related research
Keywords: Pooled VAR model; house prices; monetary policy transmission; country clusters; sign restrictions;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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References listed on IDEAS
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  1. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1998. "Asymmetries in Housing and Financial Market Institutions and EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 54-80, Autumn.
    Other versions:
  2. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-53, July.
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  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  4. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 185-207. [Downloadable!]
  5. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009. [Downloadable!]
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  6. John Muellbauer & Anthony Murphy, 2008. "Housing markets and the economy: the assessment," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 1-33, spring. [Downloadable!] (restricted)
  7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
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  8. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June. [Downloadable!]
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  9. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September. [Downloadable!] (restricted)
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  10. Matteo Iacoviello, 2002. "House Prices and Business Cycles in Europe: a VAR Analysis," Boston College Working Papers in Economics 540, Boston College Department of Economics. [Downloadable!]
  11. Matteo Iacoviello & Raoul Minetti, 2002. "Financial Liberalisation and the Sensitivity of House Prices to Monetary Policy: Theory and Evidence," Boston College Working Papers in Economics 538, Boston College Department of Economics. [Downloadable!]
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  12. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the macroeconomy," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 180-205, spring. [Downloadable!] (restricted)
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