Monetary policy and house prices in emerging markets

Abstract

Purpose This study aims to focus on two-way interaction between monetary policy and house prices in emerging economies. Design/methodology/approach This study uses panel structural vector autoregressive model. Findings The results show that real house prices decrease in response to a contractionary monetary policy shock. However, relative to advanced economies, the reaction of the prices is limited in emerging economies, pointing out the structural differences in emerging economies including the small size of the mortgage market and the lack of a well-functioning secondary market in housing finance. This study further finds that monetary policy is tightened in response to a positive shock to house prices. However, this response is also weak when compared to that response in advanced economies. Research limitations/implications These findings suggest that house price developments should not be prior target for monetary policies in emerging economies unless they become problem for financial stability or inflationary concerns. Originality/value Using a sample of inflation targeting emerging countries, this study contributes to the literature by conducting both panel setting and single-country analysis to explore the two-way dynamic relationships between the monetary policy and housing market in emerging economies.

Do real estate investment companies profit from house price growth? Evidence from Portugal

“…It has been shown that both corporate earnings and house prices exhibit similar dynamics in response to a monetary impulse (Razzak and Moosa, 2018). Monetary impulses affect house prices, especially in advanced economies with relatively large mortgage markets (Tunc and Gunes, 2022). Finally, Duca and Murphy (2021) suggest that the central banks’ countercyclical macroeconomic policies (lower interest rates and quantitative easing) aimed at tempering the effects of the COVID-19 pandemic prevented recessionary pressures from lowering house prices.…”