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The Role of House Prices and Transactions in Monetary Policy Transmission: The Case of Italy

Author

Listed:
  • Cristiana Fiorelli

    (Sapienza University of Rome)

  • Elisabetta Marzano

    (University of Naples Parthenope and CESifo)

  • Paolo Piselli

    (Bank of Italy/DG Economics, Statistics and Research)

  • Roberta Rubinacci

    (University of Naples Parthenope)

Abstract

The housing market is a key channel for monetary policy transmission. The literature has focused mainly on cyclical fluctuations in house prices rather than other indicators to account for housing market dynamics, such as residential transactions. This paper investigated the impact of the monetary policy stance on the housing market by considering residential transactions (together with house prices). First, we estimated a structural vector autoregressive (VAR) model for Italy from 1999Q1 to 2019Q4 using Cholesky structural identification. Second, we used an external instrument to identify the contemporaneous response of all endogenous variables to the shock of interest (Proxy-VAR). Our results indicate that transactions are more significantly reactive than house prices to a restrictive monetary policy shock. After a policy rate increases, the sudden stop in exchange volumes and the low degree of liquidity perceived in the housing market can contribute to shaping the housing wealth effect captured by prices. The results are supported by a robustness analysis based on local projections. Therefore, policy-makers should consider the role of residential transactions in evaluating the effectiveness of monetary policy transmission.

Suggested Citation

  • Cristiana Fiorelli & Elisabetta Marzano & Paolo Piselli & Roberta Rubinacci, 2025. "The Role of House Prices and Transactions in Monetary Policy Transmission: The Case of Italy," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 11(3), pages 1239-1266, November.
    • Handle: RePEc:spr:italej:v:11:y:2025:i:3:d:10.1007_s40797-024-00282-6
    DOI: 10.1007/s40797-024-00282-6
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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