Housing Market Connectedness and Transmission of Monetary Policy

Woo Suk Lee and Eunseong Ma
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Woo Suk Lee: Dong-A University

No 2023rwp-219, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper examines whether the degree of interconnectivity among local housing markets affects the effectiveness of the monetary transmission mechanism in the U.S. economy. We construct measures of housing market connectedness and use a state-dependent local projection method to estimate nonlinear empirical impulse responses of macroeconomic variables to a monetary policy shock. The primary finding is that monetary policy has a greater impact when regional housing markets are more synchronized. This implies that a spillover effect among local housing markets may magnify the effectiveness of monetary policy. Moreover, analyses reveal two additional findings: monetary policy is more effective i) during high-connectedness periods with expansions, and ii) when house price fluctuations are predominantly driven by a national factor rather than regional factors.

Keywords: Housing market, connectedness; monetary policy (search for similar items in EconPapers)
JEL-codes: E32 E52 R31 (search for similar items in EconPapers)
Pages: 33pages
Date: 2023-05
New Economics Papers: this item is included in nep-cba, nep-mon and nep-ure
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