The Credit Channel of Monetary Policy and Housing Markets: International Empirical Evidence

Bank of Finland Working Paper No. 14/2000

47 Pages Posted: 30 Jul 2001

See all articles by Matteo M. Iacoviello

Matteo M. Iacoviello

Federal Reserve Board - Trade and Financial Studies

Raoul Minetti

Michigan State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 9, 2000

Abstract

This paper tests for the presence of a credit channel (particularly a bank-lending sub-channel) for monetary policy in the housing market. We argue that the importance of this channel for investment in residential housing is highly dependent on the structural features, and particularly the efficiency and institutional organization, of housing finance. We employ a VAR methodology to analyse this issue with respect to the housing markets of four European countries (Finland, Germany, Norway and the United Kingdom), which differ greatly in terms of structural features. Our results are generally consistent with the existence of a broad credit channel, whereas the bank-lending channel seems to be operational only under certain conditions. More importantly, our results are consistent with previous analyses of housing market efficiency, which strongly suggests the existence of a clear relationship between the presence of a credit (bank lending) channel, the efficiency level of housing finance, and the type of institutions that are active in mortgage provision.

Keywords: Monetary transmission, bank lending channel, house prices, vector autoregressions

JEL Classification: E44, E51, E52, G21, C22

Suggested Citation

Iacoviello, Matteo M. and Minetti, Raoul, The Credit Channel of Monetary Policy and Housing Markets: International Empirical Evidence (October 9, 2000). Bank of Finland Working Paper No. 14/2000. Available at SSRN: https://ssrn.com/abstract=277229 or http://dx.doi.org/10.2139/ssrn.277229

Matteo M. Iacoviello (Contact Author)

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Raoul Minetti

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

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