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Monetary Policy Surprises Trigger Different Responses in the Housing Market across European Regions
Journal
SUERF - The European Money and Finance Forum
Series
SUERF Policy Brief
Type
monograph
Date Issued
2021-07
Author(s)
Abstract (De)
Monetary policy transmits to the economy by affecting current and future interest rates. Interest rates not only determine the price of future relative to current consumption and thus the timing of consumption expenditure. Interest rates also affect rents and the user cost of owning in the housing market. We show that the transmission of monetary policy to the housing market differs across European regions, suggesting that local institutions and market conditions shape the transmission. Expansionary monetary policy surprises reduce rates of newly originated fixed-rate mortgage contracts twice as much in Switzerland relative to Germany and Italy. This is associated with larger immediate, and persistent, changes in housing tenure from renting to owning, a stronger decrease in rents and an increase of the price-rent ratio. Such differences in monetary policy transmission are also present within Italy, with a stronger pass-through in the Northern regions that have been characterized as relatively more financially developed. The results highlight some of the challenges for the conduct of common monetary policy within currency areas.
Language
English
HSG Classification
contribution to scientific community
Publisher
SUERF
Number
No 125
Pages
6
Subject(s)
Division(s)
Eprints ID
266161