Housing finance and monetary policy

Arbeitspapier

We study how the structure of housing finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and ac- cording to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyze how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1069

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: collateral constraint ; Housing finance ; monetary policy ; Mortgage markets ; Immobilienfinanzierung ; Hypothekenbank ; Zinsstruktur ; Immobilienpreis ; Geldpolitik ; Geldpolitische Transmission ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Calza, Alessandro ; Stracca, Livio ; Monacelli, Tommaso
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/153503
• Last update: 10.03.2025, 11:42 AM CET