House prices and monetary policy in the euro area: evidence from structural VARs
Andrea Nocera and
No 2073, Working Paper Series from European Central Bank
We use a Bayesian stochastic search variable selection structural VAR model to investigate the heterogeneous impact of housing demand shocks on the macroeconomy and the role of house prices in the monetary policy transmission, across euro area countries. A novel set of identiﬁcation restrictions, which combines zero and sign restrictions, is proposed. By exploiting the cross-sectional dimension of our data, we explore the diﬀerences in the propagation channels of house prices and monetary policy and the challenges they pose in the process of real and nominal convergence in the Eurozone. Among the main results, we ﬁnd a comparatively stronger housing wealth eﬀect on consumption in Ireland and Spain. We provide new evidence in support of the ﬁnancial accelerator hypothesis, showing that house prices play an important role in the availability of loans. A signiﬁcant and highly heterogeneous eﬀect of monetary policy on house price dynamics is also documented. JEL Classification: C22, E21, E31, E44, E52
Keywords: Bayesian vector autoregression; house prices; identified VARs; monetary policy; policy counterfactuals (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172073
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