nr 015 - Monetary Policy Shocks and the Role of House Prices Across European Countries

This paper provides a discussion of the ‘housing market’ channels of the monetary transmission mechanism (MTM) and offers some evidence on institutional differences in the European housing and mortgage markets. Using a number of VAR models, estimated individually for nine European countries over the pre-EMU period, we find that house prices are significantly affected by monetary policy shocks. The relative role of these policy-induced fluctuations in house prices for private consumption is then investigated. We show that house prices may enhance the effects of monetary shocks on consumer spending in those economies where housing and mortgage markets are relatively more developed and competitive. Keywords: Monetary transmission, house prices, impulse responses. JEL Codes: C32, E21, E52, R21.