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Demand roars, supply whispers: Monetary policy and housing in Canada

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  • Stéphane Surprenant

Abstract

We examine the effects of monetary policy shocks on the Canadian housing market. Using high-frequency surprises around fixed announcement dates as an instrument in a Bayesian VAR, we estimate the responses of house prices, housing starts, building permits, resales, inventories, and mortgage purchases to a contractionary monetary policy shock. An increase in the policy rate leads to a substantial and persistent decline in average house prices. Housing starts and building permits fall, but their implied effects on the future housing stock are both slow and modest. Interpreted through the lens of market equilibrium, these results are most consistent with a stronger response of housing demand than housing supply. Mortgage purchases provide additional evidence in support of this interpretation.

Suggested Citation

  • Stéphane Surprenant, 2026. "Demand roars, supply whispers: Monetary policy and housing in Canada," Staff Analytical Papers 2026-52, Bank of Canada.
    • Handle: RePEc:bca:bocsap:26-52
    DOI: 10.34989/sap-2026-52
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    Keywords

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    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E - Macroeconomics and Monetary Economics
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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