Monetary Policy and Homeownership: Empirical Evidence,Theory, and Policy Implications

Daniel Dias and Joao Duarte

No 1344, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We show that monetary policy affects homeownership decisions and argue that this effect is an important and overlooked channel of monetary policy transmission. We first document that monetary policy shocks are a substantial driver of fluctuations in the U.S. homeownership rate and that monetary policy affects households' housing tenure choices. We then develop and calibrate a two-agent New Keynesian model that can replicate the estimated transmission of monetary policy shocks to homeownership rates and housing rents. We find that the calibrated model provides an explanation to the "price puzzle" and delivers two important results with policy implications. First, the homeownership decision channel amplifies the redistributive effects of monetary policy, with contractionary shocks benefiting more outright homeowners and disadvantaging more renters and homeowners with a mortgage. Second, a monetary authority that reacts to a price index that includes housing rents generates excess house price, rents, and output volatility and larger real effects.

Keywords: Monetary policy; Homeownership; Housing rents and housing prices; Inflation dynamics; Housing tenure choice; “Price puzzle (search for similar items in EconPapers)
JEL-codes: E31 E43 R21 (search for similar items in EconPapers)
Date: 2022-05-19
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
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Working Paper: Monetary Policy and Homeownership: Empirical Evidence, Theory, and Policy Implications (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1344

DOI: 10.17016/IFDP.2022.1344

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