Publication detail

The Effect of Monetary Policy on House Prices- How Strong is the Transmission?

Author(s): Mgr. Josef Bajzík ,
Mgr. Dominika Ehrenbergerová (Kolcunová) ,
Type: Others
Year: 2020
Number: 0
Published in: CNB WP 14/2020
Publishing place: Prague
Keywords: House prices, meta-analysis, monetary policy, publication selection, transmission.
JEL codes: C83, E52, R31
Suggested Citation: Ehrenbergerová, Dominika & Bajzík Josef (2020): "The Effect of Monetary Policy on House Prices- How Strong is the Transmission?", CNB Working papers, 14/2020.
Abstract: In the current long-lasting period of low interest rates and the overheating of the housing markets, the discussion of the effect of monetary policy on house prices arises again. We analyse the relationship examining the broad empirical literature on this topic. We collect 1447 estimates of the effect of changes in short term interest rates on house prices. These estimates come from 31 studies and are drawn from vector autoregression models. On average, an increase in the interest rate by one percentage point causes the median decrease of house prices of 0.7 per cent for one-year horizon and 0.9 per cent for two-year horizon. Moreover, our study shows that at the medium-term (monetary policy) horizon, the effect of monetary policy remains significant after correcting for publication bias present in the literature. In addition, we collect more than 40 control variables. Those capture, first, the context in which estimates were obtained, and, second, the characteristics of economies in question. Within both groups of variables we identify several significant aspects explaining differences in the estimates reported in the literature. Most prominent drivers of heterogeneity are the use of sign restrictions, the inclusion of additional endogenous variables in VAR models, and the level of indebtedness.




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