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Housing markets and the heterogeneous effects of monetary policy across the euro area

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  • Stefano Pica

    (Bank of Italy)

Abstract

This paper studies why monetary policy affects euro-area member states unevenly, focusing on three housing and mortgage market characteristics: homeownership rate, adjustable-rate mortgage share, and loan-to-value ratio. Using euro-area data, I show that higher values are associated with stronger consumption and mortgage rate responses. A two-country New Keynesian currency-union model with household heterogeneity reproduces observed heterogeneity and isolates three channels—cash-flow, homeownership rate, and mortgage credit—the last dominating. A Portugal case study shows amplification arises when all features are high. Closing Portugal's gap relative to the euro-area average would require reducing its LTV ratio to roughly one-third of its current level, underscoring how limited this macroprudential instrument is for addressing monetary-policy heterogeneity on its own.

Suggested Citation

  • Stefano Pica, 2026. "Housing markets and the heterogeneous effects of monetary policy across the euro area," Temi di discussione (Economic working papers) 1523, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1523_26
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2026/2026-1523/en_tema_1523.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Keywords

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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
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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