Research Discussion Papers, Bank of Finland
No 14/2000:
The Credit Channel of Monetary Policy and Housing Markets: International Empirical Evidence
Matteo Iacoviello and Raoul Minetti
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; (follow links to similar papers)
JEL-Codes: C22; E44; E51; E52; G21; (follow links to similar papers)
49 pages, October 9, 2000
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