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Residential Concentration Dampens Monetary Policy Transmission

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  • Mark Toth

Abstract

This paper analyzes how the spatial structure of housing affects monetary policy transmission. I integrate spatial structure into a monetary business cycle model with housing. Spatial structure matters economically through households’ location prefer ences and residential externalities. These two features are reflected in two measures of residential concentration. Higher residential concentration dampens consumption responses to interest rate changes through housing demand. In an empirical analysis, I create model-consistent measures of residential concentration for US and Eurozone regions, using geospatial data based on satellite imagery. I empirically validate the model’s predictions in a state-dependent local projections framework. My paper identifies residential concentration as a fundamental determinant of monetary policy transmission.

Suggested Citation

  • Mark Toth, 2026. "Residential Concentration Dampens Monetary Policy Transmission," CRC TR 224 Discussion Paper Series crctr224_2025_762, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_762
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    References listed on IDEAS

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    1. 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.
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    3. Gulyas, Andreas & Meier, Matthias & Ryzhenkov, Mykola, 2024. "Labor market effects of monetary policy across workers and firms," European Economic Review, Elsevier, vol. 166(C).
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    6. Elliot Anenberg & Tess Scharlemann & Eileen van Straelen, 2025. "Borrowing and Spending in the Money: Debt Substitution and the Cash-Out Refinance Channel of Monetary Policy," American Economic Review, American Economic Association, vol. 115(11), pages 3909-3940, November.
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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