Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada

Nishaad Rao and Tao Wang

No 2026-2, Staff Analytical Papers from Bank of Canada

Abstract: We use Canadian data to examine how monetary policy affects house prices and the consumer price index for rent (CPI-rent) through exogenous changes in the mortgage interest rates. Nationwide, tighter monetary policy lowers house prices but raises CPI-rent, likely due to higher user costs for landlords or greater relative demand for rental housing. City-level analysis shows that, in response to tighter monetary policy, house prices fall most in cities where supply is inelastic, while CPI-rent tends to rise in cities with lower proportions of households moving from renting to owning.

Keywords: Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission (search for similar items in EconPapers)
JEL-codes: E31 E52 R21 (search for similar items in EconPapers)
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsap:26-2

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