The Role of House Prices in Monetary Transmission Mechanism: Evidence from Turkish Economy

Abstract

It is possible for central banks to carry out their policies effectively by making the correct assessment of the reflection of their monetary policy decisions on real economic activities. For this reason, it is important to examine the effects of applied policies on real economic activities and inflation. Accordingly, the 2008 global financial crisis revealed the importance of the relationship between monetary policy, house prices, and real economic activity, in other words, the channel of transmission of house prices. As a matter of fact, developments in the housing industry have a significant impact on the process leading up to the 2008 Global financial crisis. In this context, after the 2008 Global financial crisis, both the role of house prices in monetary policy implementation and the function of house prices in the transmission mechanism has begun to be questioned. In this study, the effectiveness of the house prices transmission channel, a subgroup of the asset prices channel based on the experience of the 2008 Global financial crisis, was empirically analyzed based on the Turkish economy. The VAR model has been preferred as a method of empirical analysis. The analysis covers the period 2010-2019, and the monthly data set is used in the analysis. The results of the analysis show that monetary policy affects house prices, but house prices do not have a statistically significant effect on housing investment, industrial production index, and inflation. Related results show that the housing prices transmission channel is not active in the Turkish economy.

Economic Factors Influencing Housing Prices in Pakistan

“…Most of the prior studies support the idea that the policy rate has a transmission effect on housing prices, but it is claimed [23] in the case of Turkey that the Turkish economy does not have a transmission effect on housing prices. The study employed the VAR model for empirical analysis, which covered the period of monthly data from 2010 to 2019.…”

“…The findings reveal that monetary policy has an impact on housing prices, but the impact of housing prices on housing investment, the industrial production index, and inflation is not statistically significant. The Turkish economy does not have a housing price transmission channel, according to the findings [23]. In the case of India, it is suggested that the role of monetary policy or policy rate is slightly affecting Indian real estate prices, and that 13 percent of the variation occurs due to policy rate in a 10-month period [24].…”