When Does Monetary Policy Sway House Prices? A Meta-Analysis

40 Pages Posted: 14 Jul 2021

See all articles by Tomas Havranek

Tomas Havranek

Charles University in Prague; Centre for Economic Policy Research (CEPR)

Dominika Kolcunova

Charles University; Czech National Bank (CNB)

Josef Bajzik

Czech National Bank (CNB)

Date Written: May 1, 2021

Abstract

Several central banks have leaned against the wind in the housing market by increasing the policy rate preemptively to prevent a bubble. Yet the empirical literature provides mixed results on the impact of short-term interest rates on house prices: the estimated semi-elasticities range from -12 to positive values. To assign a pattern to these differences, we collect 1,447 estimates from 31 individual studies that cover 45 countries and 69 years. We then relate the estimates to 39 characteristics of the financial system, business cycle, and estimation approach. Our main results are threefold. First, the mean reported estimate is exaggerated by publication bias, because insignificant results are underreported. Second, omission of important variables (liquidity and long-term rates) likewise exaggerates the effects of short-term rates on house prices. Third, the effects are stronger in countries with more developed mortgage markets and generally later in the cycle when the yield curve is flat and house prices enter an upward spiral.

JEL Classification: C83, E52, R21

Suggested Citation

Havranek, Tomas and Kolcunova, Dominika and Bajzik, Josef, When Does Monetary Policy Sway House Prices? A Meta-Analysis (May 1, 2021). CEPR Discussion Paper No. DP16196, Available at SSRN: https://ssrn.com/abstract=3886637

Tomas Havranek (Contact Author)

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Dominika Kolcunova

Charles University ( email )

U Knize 8
Prague, 15800
Czech Republic

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Josef Bajzik

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

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