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Monetary Policy Shocks and the Role of House Prices Across European Countries

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Massimo Giuliodori

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Abstract

This paper provides a discussion of the `housing market' channels of the monetarytransmission mechanism (MTM) and offers some evidence on institutional differences in the European housing and mortgage markets. Using a number of VAR models, estimated individually for nine European countries over the pre-EMU period, we find that house prices are significantly affected by monetary policy shocks. The relative role of these policy-induced fluctuations in house prices for private consumption is then investigated. We show that house prices may enhance the effects of monetary shocks on consumer spending in those economies where housing and mortgage markets are relatively more developed and competitive.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 015.

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Date of creation: Nov 2004
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Handle: RePEc:dnb:dnbwpp:015

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Related research
Keywords: Monetary transmission; house prices; impulse responses.;

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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
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Benoît Mojon, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 40, European Central Bank. [Downloadable!]
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    Other versions:
  3. Frederic S. Mishkin, 2001. "The Transmission Mechanism and the Role of Asset Prices in Monetary Policy," NBER Working Papers 8617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Matteo M. Iacoviello, 2000. "House prices and the macroeconomy in Europe: results from a structural VAR analysis," Working Paper Series 18, European Central Bank. [Downloadable!]
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  8. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Prices on Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund. [Downloadable!]
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    Other versions:
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  12. Fernando Barran & Virginie Coudert & Benoit Mojon, 1996. "The transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center. [Downloadable!]
  13. Christopher A. Sims, 1998. "Role of interest rate policy in the generation and propagation of business cycles: what has changed since the '30s?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Jun, pages 121-175. [Downloadable!]
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  16. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 709-38, May. [Downloadable!] (restricted)
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  21. Sydney Ludvigson & Charles Steindel & Martin Lettau, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 117-133. [Downloadable!]
  22. Karl E. Case, John M. Quigley, Robert J. Shiller., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Economics Working Papers E01-308, University of California at Berkeley. [Downloadable!]
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  23. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June. [Downloadable!] (restricted)
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  24. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January. [Downloadable!] (restricted)
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  25. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January. [Downloadable!] (restricted)
  26. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May. [Downloadable!] (restricted)
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  27. Claudio E. V. Borio & Wilhelm Fritz, 1995. "The response of short-term bank lending rates to policy rates: a cross-country perspective," BIS Working Papers 27, Bank for International Settlements. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Calza, Alessandro & Monacelli, Tommaso & Stracca, Livio, 2007. "Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter?," CEPR Discussion Papers 6231, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Katrin Assenmacher-Wesche & Stefan Gerlach, 2008. "Ensuring financial stability: financial structure and the impact of monetary policy on asset prices," IEW - Working Papers iewwp361, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
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