Housing markets and the heterogeneous effects of monetary policy across the euro area

Stefano Pica ()
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Stefano Pica: Bank of Italy

No 1523, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies why monetary policy affects euro-area member states unevenly, focusing on three housing and mortgage market characteristics: homeownership rate, adjustable-rate mortgage share, and loan-to-value ratio. Using euro-area data, I show that higher values are associated with stronger consumption and mortgage rate responses. A two-country New Keynesian currency-union model with household heterogeneity reproduces observed heterogeneity and isolates three channels—cash-flow, homeownership rate, and mortgage credit—the last dominating. A Portugal case study shows amplification arises when all features are high. Closing Portugal's gap relative to the euro-area average would require reducing its LTV ratio to roughly one-third of its current level, underscoring how limited this macroprudential instrument is for addressing monetary-policy heterogeneity on its own.

Keywords: New Keynesian; homeownership; adjustable-rate mortgages; euro area (search for similar items in EconPapers)
JEL-codes: C22 E02 E12 E31 E43 E52 E58 F33 F45 G21 G51 (search for similar items in EconPapers)
Date: 2026-03
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