Housing wealth and monetary policy transmission: cross-country evidence

Paola Di Casola and Magdalena Grothe

No 3204, Working Paper Series from European Central Bank

Abstract: This paper quantifies the role of housing wealth in the transmission of monetary policy to consumption in 20 advanced economies. Using Bayesian VAR models we identify structural shocks with a novel combination of sign and maximum forecast error variance restrictions, isolating the housing wealth channel through counterfactual impulse responses. We find that the housing wealth multiplier — the sensitivity of consumption to exogenous house price changes — is strongly correlated with outright homeownership rates and is higher for durable consumption. Cross-country differences in the monetary policy transmission to consumption are largely driven by the cash-flow channel. JEL Classification: E21, E52, E44, R31, C32

Keywords: cash-flow channel; consumption; local projections; structural BVAR (search for similar items in EconPapers)
Date: 2026-03
Note: 1601201
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263204

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