Monetary policy and housing markets: insights using a novel measure of housing supply elasticity

Ryan Banerjee, Denis Gorea, Deniz Igan and Gabor Pinter

BIS Quarterly Review, 2024

Abstract: This special feature explores how the responsiveness of new housing supply to house prices (the supply elasticity) affects the transmission of monetary policy. We document a long-term decline in the supply elasticity of new housing and find that a less elastic supply amplifies the impact of monetary policy on house prices compared with rents. This disparity could raise questions about the measurement of housing costs in inflation measures targeted by central banks, as typically rents, rather than house prices, directly enter consumer price indices. Our findings highlight the importance of considering changing housing supply conditions in monetary policy formulation.

JEL-codes: E52 R31 (search for similar items in EconPapers)
Date: 2024
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