The Role of House Prices and Transactions in Monetary Policy Transmission: The Case of Italy

Cristiana Fiorelli (), Elisabetta Marzano (), Paolo Piselli () and Roberta Rubinacci ()
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Cristiana Fiorelli: Sapienza University of Rome
Elisabetta Marzano: University of Naples Parthenope and CESifo
Paolo Piselli: Bank of Italy/DG Economics, Statistics and Research
Roberta Rubinacci: University of Naples Parthenope

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2025, vol. 11, issue 3, No 14, 1239-1266

Abstract: Abstract The housing market is a key channel for monetary policy transmission. The literature has focused mainly on cyclical fluctuations in house prices rather than other indicators to account for housing market dynamics, such as residential transactions. This paper investigated the impact of the monetary policy stance on the housing market by considering residential transactions (together with house prices). First, we estimated a structural vector autoregressive (VAR) model for Italy from 1999Q1 to 2019Q4 using Cholesky structural identification. Second, we used an external instrument to identify the contemporaneous response of all endogenous variables to the shock of interest (Proxy-VAR). Our results indicate that transactions are more significantly reactive than house prices to a restrictive monetary policy shock. After a policy rate increases, the sudden stop in exchange volumes and the low degree of liquidity perceived in the housing market can contribute to shaping the housing wealth effect captured by prices. The results are supported by a robustness analysis based on local projections. Therefore, policy-makers should consider the role of residential transactions in evaluating the effectiveness of monetary policy transmission.

Keywords: Housing market; House prices; Residential transactions; Monetary policy; Local projections (search for similar items in EconPapers)
JEL-codes: C22 E44 E52 R20 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40797-024-00282-6

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