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Housing market connectedness and transmission of monetary policy

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  • Woo Suk Lee
  • Eunseong Ma

Abstract

This paper investigates whether interconnectivity among local housing markets influences the effectiveness of the (United States) U.S. monetary transmission mechanism. We construct measures of housing market connectedness and employ a state‐dependent local projection method to estimate nonlinear impulse responses of macroeconomic variables to monetary policy (MP) shocks. The findings show that MP has a greater impact when regional housing markets are more synchronized. Higher interconnectivity amplifies spillover effects across local markets, enhancing MP effectiveness. Additionally, we find that MP is particularly effective when highly connected states experience economic expansion.

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  • Woo Suk Lee & Eunseong Ma, 2025. "Housing market connectedness and transmission of monetary policy," Economic Inquiry, Western Economic Association International, vol. 63(3), pages 961-984, July.
    • Handle: RePEc:bla:ecinqu:v:63:y:2025:i:3:p:961-984
    DOI: 10.1111/ecin.13292
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