Residential Concentration Dampens Monetary Policy Transmission

Mark Toth ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper analyzes how the spatial structure of housing affects monetary policy transmission. I integrate spatial structure into a monetary business cycle model with housing. Spatial structure matters economically through households’ location prefer ences and residential externalities. These two features are reflected in two measures of residential concentration. Higher residential concentration dampens consumption responses to interest rate changes through housing demand. In an empirical analysis, I create model-consistent measures of residential concentration for US and Eurozone regions, using geospatial data based on satellite imagery. I empirically validate the model’s predictions in a state-dependent local projections framework. My paper identifies residential concentration as a fundamental determinant of monetary policy transmission.

Keywords: Monetary policy; business cycle; spatial; housing demand. (search for similar items in EconPapers)
JEL-codes: E32 E52 R12 R21 (search for similar items in EconPapers)
Pages: 55
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_762

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