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The Credit Channel of Monetary Policy: Evidence from the Housing Market

  • Matteo Iacoviello

    ()

    (Boston College)

  • Raoul Minetti

    ()

    (Michigan State University)

This paper tests a credit channel of monetary policy (especially a bank-lending channel) in the housing market. We argue that the relevance of the credit channel depends on the structural features of the housing finance system, in particular efficiency and institutional organisation. We employ a structural VAR approach to analyse this issue in four European housing markets (Finland, Germany, Norway and the UK). Our results support the existence of a broad credit channel and, in some contexts, of a bank-lending channel. More importantly, the findings show across countries a clear-cut relationship between presence of a credit (bank-lending) channel, efficiency of housing finance and type of institutions active in mortgage provision.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 541.

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Length: 41 pages
Date of creation: 01 Oct 2002
Date of revision: 29 Aug 2003
Handle: RePEc:boc:bocoec:541
Note: This paper was previously circulated with the title "The Credit Channel of Monetary Policy and the Housing Market: International Empirical Evidence"
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  15. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
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  17. Warne, A., 1993. "A Common Trends Model: Identification, Estimation and Inference," Papers 555, Stockholm - International Economic Studies.
  18. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
  19. Ayyagari, Meghana & Beck, Thorsten & Demirguc-Kunt, Asl, 2003. "Small and medium enterprises across the globe : a new database," Policy Research Working Paper Series 3127, The World Bank.
  20. Jeremy C. Stein, 1993. "Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects," NBER Working Papers 4373, National Bureau of Economic Research, Inc.
  21. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  22. Sydney Ludvigson, 1996. "The channel of monetary transmission to demand: evidence from the market for automobile credit," Research Paper 9625, Federal Reserve Bank of New York.
  23. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
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  27. Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18.
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