Housing Market Stability, Mortgage Market Structure, and Monetary Policy: Evidence From the Euro Area

Posted: 15 Sep 2020

See all articles by Bing Zhu

Bing Zhu

University of Reading - Henley Business School

Michael Betzinger

University of Regensburg

Steffen P. Sebastian

University of Regensburg - International Real Estate Business School (IREBS)

Date Written: 2017

Abstract

This paper investigates how monetary policy stance and mortgage market structure affect non-fundamental house price movements in eleven Euro area countries. Based on a three-stage approach, our empirical evidence suggests that a one-time monetary-easing shock can significantly trigger house price booms in Euro area countries with liberal mortgage markets. Such shocks can explain over 20% of the forecasting error variance of non-fundamental house price run-ups in Ireland and Spain. We find that, in countries with more regulated mortgage markets, monetary policy stance does not significantly affect non-fundamental house prices. Policymakers may wish to focus on limiting mortgage equity withdrawals and on monitoring loan-to-value ratios and tax policies in order to minimize the side effects of accommodative monetary policies on housing market stability for Euro area countries. We posit that this is especially true for peripheral countries, which are more likely to be subjected to overly loose monetary policy stances.

Suggested Citation

Zhu, Bing and Betzinger, Michael and Sebastian, Steffen P., Housing Market Stability, Mortgage Market Structure, and Monetary Policy: Evidence From the Euro Area (2017). Journal of Housing Economics, Vol. 37, 2017, Available at SSRN: https://ssrn.com/abstract=3661373

Bing Zhu

University of Reading - Henley Business School ( email )

Greenlands
Henley, RG9 3AU
United Kingdom

Michael Betzinger

University of Regensburg ( email )

93040 Regensburg
D-93040 Regensburg, 93053
Germany

Steffen P. Sebastian (Contact Author)

University of Regensburg - International Real Estate Business School (IREBS) ( email )

Universitaetsstrasse 31
Regenburg, Bavaria 93040
Germany
+49(941)943-5081 (Phone)
+49(941)943-5082 (Fax)

HOME PAGE: http://www.irebs.de

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