Monetary and Macroprudential Policy Transmission to Housing Prices: Evidence on the Role of Unconventional Policies in the Euro Area

This paper examines how monetary and macroprudential policy settings jointly influence real housing price dynamics depending on the monetary policy conditions. We use the real shadow rate to capture the effects of unconventional monetary policy measures and self-constructed macroprudential policy index based on the IMF database. The results of panel VAR model for 19 euro area countries suggest that the response to a tightening of monetary policy is an negative reaction of housing prices. On the contrary, housing prices generally do not respond to a tightening of macroprudential policy. These findings remain robust when variables are altered or reordered within the Cholesky decomposition. However, by distinguishing monetary policy conditions, we reveal state-dependent responses. Under an unconventional monetary policy conditions (the zero lower bound), monetary policy shocks have no impact on real housing prices, and changes in the macroprudential policy stance produce only a marginal, lagged response in housing prices. In normal times, monetary policy shocks have a significantly negative effect on real housing prices and macroprudential tightening becomes more effective in influencing housing prices.