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Housing wealth and monetary policy transmission: cross-country evidence

Author

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  • Di Casola, Paola
  • Grothe, Magdalena

Abstract

This paper quantifies the role of housing wealth in the transmission of monetary policy to consumption in 20 advanced economies. Using Bayesian VAR models we identify structural shocks with a novel combination of sign and maximum forecast error variance restrictions, isolating the housing wealth channel through counterfactual impulse responses. We find that the housing wealth multiplier — the sensitivity of consumption to exogenous house price changes — is strongly correlated with outright homeownership rates and is higher for durable consumption. Cross-country differences in the monetary policy transmission to consumption are largely driven by the cash-flow channel. JEL Classification: E21, E52, E44, R31, C32

Suggested Citation

  • Di Casola, Paola & Grothe, Magdalena, 2026. "Housing wealth and monetary policy transmission: cross-country evidence," Working Paper Series 3204, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263204
    Note: 1601201
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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • 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

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