Non-linear effects of monetary policy shocks on housing: evidence from a CESEE country

This paper estimates the effects of standard monetary policy shocks on housing and other macro variables in Slovakia, a CESEE country. For that purpose, we use a non-linear local projection model which uncovers asymmetries in these effects around three different dimensions: high versus low economic growth, interest rates and infla-tion. The main findings in this study are as follows. First, we often find no evidence of standard monetary policy eliciting a contractionary response in house prices or housing investment. Second, evidence is weakest during recessions and periods of low interest rates or low inflation. Third, these findings may be linked to the inability of monetary policy to trigger significant contractionary effects on household lending, which in turn may be linked to the effective lower bound on interest rates, the pre-dominance of fixed-rate mortgages in Slovakia, or interaction between monetary and macroprudential policy. We also provide a discussion on the possible country charac-teristics that might drive these results and policy implications.
Keywords: Monetary policy, nonlinearities, local projections, euro area.
JEL Classification: C32, C36, E42, E52, E58, R21, R31.