Housing finance and monetary policy

Alessandro Calza, Tommaso Monacelli and Livio Stracca

No 1069, Working Paper Series from European Central Bank

Abstract: We study how the structure of housing finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyse how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure. JEL Classification: E21, E44, E52

Keywords: collateral constraint; housing finance; monetary policy; mortgage markets (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
Note: 338639
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1069.pdf (application/pdf)

Related works:
Journal Article: HOUSING FINANCE AND MONETARY POLICY (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091069

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().