Feeling the Pinch? Tracing the Effects of Monetary Policy through Housing Markets

Summary

At the IMF's spring meeting, John Bishop moderated a discussion on the impact of monetary policy on housing markets. Nina Banova and Alesia De Stefani presented findings from the World Economic Outlook, revealing that housing market characteristics, such as the prevalence of fixed-rate mortgages and regional house price overvaluation, significantly influence the effectiveness of monetary policy across countries. They highlighted the importance of understanding these characteristics for calibrating monetary policy and cautioned against the risks of overtightening due to potential delayed effects on consumption and GDP.

Takeaways

• 🏦 The effects of monetary policy on housing markets are being traced, with a focus on how different countries respond to changes in interest rates.
• 📈 Central Bank policy rates have increased significantly since early 2022, which typically leads to a slowdown in house prices and economic activity.
• 🏠 Housing markets are considered 'macro-critical' as they significantly impact the aggregate economy's response to major events, including monetary policy changes.
• 💼 Nina Banova and Alesa De Stefani from the IMF research department presented findings from the World Economic Outlook, focusing on why some countries are more affected by higher interest rates than others.
• 💡 Housing market characteristics, such as the prevalence of fixed-rate mortgages and regional house price overvaluation, determine how monetary policy impacts consumers.
• 📊 Countries with a high share of fixed-rate mortgages tend to see less impact on consumption when policy rates rise, as monthly payments do not adjust quickly to policy rate changes.
• 🌐 Regional variations in house price overvaluation can lead to different responses to monetary policy, with overvalued areas experiencing a more pronounced decline in GDP per capita and house prices.
• 🔄 The transmission of monetary policy through housing markets can be asymmetric, with tightening policies typically having a more immediate and larger impact on the real economy than loosening policies.
• 📚 The analysis suggests that understanding country-specific housing and mortgage market characteristics is crucial for calibrating monetary policy effectively.
• 🏢 Policymakers need to be cautious about the potential delayed effects of monetary policy, especially in countries with short mortgage fixation periods, where consumer spending could decline sharply once rates reset.

Q & A

What is the main topic of the session presented by Nina and Alesia?

The main topic of the session is tracing the effects of monetary policy through housing markets. They discuss how different countries are affected by changes in interest rates, particularly through the lens of housing market characteristics.

Why is housing considered 'macro-critical'?

Housing is considered 'macro-critical' because it is a significant part of a typical household's monthly expenses and wealth. Changes in housing markets, such as house prices and mortgage payments, can have substantial impacts on the overall economy and its response to monetary policy.

What are the two main housing market characteristics that were studied in the session?

The two main housing market characteristics studied are the relative prevalence of fixed-rate mortgages in the stock of outstanding debt and the regional degree of house price overvaluation.

How does the prevalence of fixed-rate mortgages affect the transmission of monetary policy?

In countries where fixed-rate mortgages are prevalent, fewer borrowers experience an increase in their monthly mortgage payments when central banks hike interest rates. This can result in a more muted response in terms of consumption and economic activity compared to countries where fixed-rate mortgages are less common.

What is the impact of housing market overvaluation on the effectiveness of monetary policy?

In regions where housing markets are overvalued, an increase in policy rates can lead to a pronounced decline in GDP per capita and a steeper drop in house prices compared to areas where prices are not overvalued. This shows how household optimism and excessive borrowing can drive housing booms, which can quickly reverse when interest rates rise.

How do housing supply constraints affect the transmission of monetary policy?

Housing supply constraints can make the effects of monetary policy more potent in areas where supply is more constrained. These areas tend to experience larger house price increases and higher borrowing, making households more sensitive to policy rate changes.

What is the main takeaway for policymakers from the analysis presented in the session?

Policymakers should have a deep, country-specific understanding of housing and mortgage markets and how they evolve over time. This understanding can help calibrate monetary policy more effectively and avoid underestimating the delayed effects of monetary policy.

How do the characteristics of mortgage markets differ across countries, and why does this matter?

Mortgage market characteristics, such as the prevalence of fixed-rate mortgages, vary significantly across countries. These differences can help explain why some countries feel the effects of rising interest rates more than others, which is crucial for understanding the transmission of monetary policy.

What is the method used to measure house price overvaluation in the analysis?

The method used to measure overvaluation is by looking at the deviation of the price-to-income ratio from the long-term regional average. This approach allows for a broad inclusion of countries in the analysis.

Are the effects of monetary policy tightening and loosening symmetric in the housing market?

The effects are not symmetric. Tightening impulses typically transmit faster and to a larger degree to real economic outcomes and house prices than loosening impulses. For example, fixed-rate mortgages are more effective in dampening a tightening impulse than a loosening one.

How does the homeownership rate with mortgages affect the transmission of monetary policy?

Homeownership rates in isolation do not significantly affect the transmission of monetary policy. However, homeownership with mortgages is very different, as these homeowners are more sensitive to changes in interest rates, affecting their consumption and the overall economy.

Outlines

00:00

🏛️ Introduction to the Analytical Session on Monetary Policy and Housing Markets

The session, moderated by John Bishop from the IMF, opens with a focus on the impact of monetary policy through housing markets. John introduces the presenters, Nina Bovska and Alesia De Stefani, from the IMF research department, who will explore why some countries are more affected by rising interest rates than others. They aim to understand if monetary policy effects differ due to variations in housing market characteristics, such as the prevalence of fixed-rate mortgages and regional house price overvaluations.

05:01

📈 Impact of Fixed-Rate Mortgages on Monetary Policy Transmission

Nina and Alesia present findings from the World Economic Outlook, emphasizing how fixed-rate mortgages influence the transmission of monetary policy. They illustrate that in countries where such mortgages are less common, consumption declines more significantly after a policy rate increase. This is attributed to the immediate impact on adjustable-rate mortgage payments, leading to reduced spending on non-housing items and affecting aggregate demand.

10:04

🌆 Effects of Regional House Price Overvaluations on Economic Activity

The presenters delve into the consequences of monetary policy in overvalued housing markets, showing that policy rate hikes lead to pronounced declines in GDP per capita and house prices in these areas. They suggest that the optimism driving housing booms can quickly reverse with rising interest rates, leading to significant economic repercussions.

15:04

🌐 Understanding Variances in Monetary Policy Impact Across Countries

Nina and Alesia discuss the importance of recognizing the differences in housing and mortgage market characteristics across countries, which can explain the varying impacts of monetary policy. They highlight that changes in these characteristics over time may weaken the transmission of monetary policy, and policymakers should be cautious about the potential delayed effects of their decisions.

20:04

🤔 Audience Questions on Housing Market Analysis

The session includes a Q&A segment where the audience poses questions about the relationship between housing prices, inflation, and earnings, the measurement of housing market overvaluation, and the symmetry of effects in tightening and loosening monetary policy environments. The presenters address these queries, providing insights into the direct and indirect impacts of monetary policy on housing markets and the importance of considering housing market dynamics.

🏡 Final Thoughts on Housing Market Characteristics and Monetary Policy

In conclusion, Nina and Alesia stress that the same change in policy rates can have varied effects due to differing housing market characteristics. They note that these characteristics are not static and can change significantly over time, influencing the effectiveness of monetary policy. The presenters advocate for a deep understanding of housing and mortgage markets for the successful calibration of monetary policy.

Keywords

💡Monetary Policy

Monetary policy refers to the actions of a central bank or monetary authority that influence the supply of money and interest rates in an economy. In the video, it is discussed how changes in central bank policy rates, which are a part of monetary policy, can affect housing markets and the economy. The script mentions that rising policy rates can lead to a slowdown in house prices and economic activity, which is a key mechanism through which monetary policy impacts the economy.

💡Housing Markets

Housing markets encompass the economic dynamics of residential properties, including the sale, rental, and development of housing. The video's theme revolves around the effects of monetary policy on housing markets. The script discusses how the characteristics of housing markets, such as the prevalence of fixed-rate mortgages and regional house price overvaluation, can influence the transmission of monetary policy and its impact on the economy.

💡Fixed-Rate Mortgages

A fixed-rate mortgage is a type of mortgage loan where the interest rate remains constant over the life of the loan, regardless of changes in market rates. The script highlights the significance of fixed-rate mortgages in the context of monetary policy, explaining that in countries where these are prevalent, the immediate impact of rising policy rates on consumers' monthly mortgage payments is lessened, which can affect the overall economic response to monetary policy changes.

💡Policy Rates

Policy rates are the interest rates set by central banks and are a key tool in monetary policy. The script discusses the increase in policy rates since early 2022 and how these increases typically result in a slowdown of house prices and economic activity. Policy rates are crucial in understanding the transmission mechanism of monetary policy effects on housing markets.

💡Overvaluation

Overvaluation in the context of housing markets refers to a situation where house prices exceed their long-term average or fair value, often driven by factors like speculative demand. The video script uses the term to describe regional differences in house price overvaluation and how this can affect the sensitivity of these regions to changes in monetary policy, with overvalued areas experiencing a more pronounced decline in GDP per capita and house prices when policy rates rise.

💡Economic Activity

Economic activity refers to the production of goods and services in an economy and can be measured by indicators such as GDP. The script mentions that rising policy rates are predicted to slow down economic activity. The relationship between monetary policy and economic activity is central to the discussion, as the effects of policy changes on housing markets can, in turn, influence the broader economy.

💡Transmission Mechanism

The transmission mechanism in economics describes how changes in monetary policy are transmitted through various channels to affect the economy. In the video, the focus is on the housing channels of monetary policy transmission, which include how policy rates impact mortgage rates, house prices, and ultimately consumption and economic activity. The script discusses how different housing market characteristics can alter the strength and speed of this transmission.

💡Aggregate Demand

Aggregate demand represents the total demand for all goods and services in an economy. The script explains that when policy rates increase and mortgage payments rise, consumers may need to reduce spending on non-housing items, which can lead to a decrease in aggregate demand. This concept is key to understanding the potential economic slowdown following a tightening of monetary policy.

💡Regional Analysis

Regional analysis involves examining economic conditions and trends at a local or regional level rather than at the national level. The video script discusses the importance of regional differences in house price overvaluation and how these differences can affect the impact of monetary policy. For example, specific regions within a country, such as London or Brussels, may experience hotter housing markets and thus be more sensitive to policy rate changes.

💡Refinancing

Refinancing refers to the process of replacing an existing loan with a new one, typically with a lower interest rate or more favorable terms. The script touches on the concept of refinancing in the context of fixed-rate mortgages, noting that during a tightening monetary policy, consumers may be less inclined to refinance, which can delay the transmission of policy rate changes to the real economy.

💡Macrocritical

The term 'macrocritical' is used in the script to emphasize the importance of housing markets to the overall economy. It is a term that suggests that the state of the housing market is critical to macroeconomic outcomes. The script explains that because housing is a significant part of household expenses and wealth, changes in this sector can have broad implications for the economy's response to monetary policy.

Highlights

Monetary policy effects on housing markets vary significantly across countries due to differences in housing market characteristics.

Central Bank policy rates have increased since 2022, typically leading to a slowdown in house prices and economic activity.

Despite predictions of a recession in 2023, many countries have shown robust house prices and real growth, challenging the effectiveness of monetary policy.

Fixed-rate mortgages insulate borrowers from immediate policy rate increases, affecting the transmission of monetary policy.

Countries with a high prevalence of fixed-rate mortgages experience less impact from Central Bank interest rate hikes.

Regional house price overvaluation impacts the effectiveness of monetary policy, with overvalued areas showing steeper declines in GDP per capita and house prices.

Housing market characteristics, such as the share of fixed-rate mortgages and regional house price overvaluation, can explain the varying impacts of interest rate changes.

Changes in housing market characteristics over time can weaken the transmission channels of monetary policy in some countries.

Policymakers should consider the specific housing and mortgage market dynamics of a country when calibrating monetary policy.

Overtightening monetary policy could present risks, especially in countries with short mortgage fixation periods where consumer spending could decline sharply.

The study finds that the effects of monetary policy tightening are more pronounced in areas with constrained housing supply.

Housing supply constraints can amplify the impact of monetary policy on house prices and economic activity.

The presentation emphasizes the importance of a deep understanding of country-specific housing and mortgage markets for effective monetary policy calibration.

The analysis does not take a normative stance on the optimal design of mortgage markets but highlights the trade-offs involved.

The study does not specifically address the impact of inflation or the pricing of real estate in relation to monetary policy effects.

The response of private consumption and house prices to monetary policy varies depending on the degree of homeownership with mortgages.

The analysis suggests that the aggregate effects of monetary policy are influenced by the interplay of housing market and mortgage market characteristics.

The presentation concludes with the importance of considering how housing market characteristics have evolved over time for the calibration of monetary policy.

Transcripts

good afternoon and welcome to the final

analytical corner of these spring

meetings and this one is on uh tracing

the effects of monetary policy through

housing markets my name is John Bishop I

work in the secretary's Department of

the IMF I'm going to be the moderator

for this session I'm gonna bring my

colleagues uh Nina bovska and Alesia de

Stefani onto the stage they're going to

present for about 10 minutes and then

we'll open up the floor for your

questions so please join me welcoming

Nina and alessie to the stage big round

of

applause thank you very much John and

thank you everyone for

coming um have you tried buying a house

or an apartment

recently if you did you might have

noticed that in many countries mortgage

rates have gone up

because look at this chart

here what this chart shows you is that

Central Bank policy rates which

generally Drive the cost of borrowing

increased a lot since early

2022 since Rising policy rates typically

result in a Slowdown of house prices and

economic activity many economies

predicted a recession in

2023 but house prices and real growth

have so far State robust in many

countries challenging these

predictions this was very interesting to

us is monetary policy no longer

effective or perhaps our policies have a

delay we took a closer look at the

mechanics of the housing market to find

out I am Nina banova of the IMF research

department and I'm Alesa theany also of

the IMF research Department today we

will present the main findings from

chapter two of the world economic

Outlook the main question were asking

today is why are some countries feeling

the pinch of higher interest rates While

others are not and we answer this

question by studying housing markets why

housing well because housing matters for

a typical household rent or mortgage

payments are the largest chunk of their

monthly expenses and if you own a home

you know that there is a lot of wealth

stored in the value of your house this

is why economists like to say that

housing is macroc critical this is just

a fancy word for saying that housing

markets matter for the way the aggregate

economy will respond to big events

including changes in monetary

policy here is a summary of our findings

housing market characteristics determine

how much monetary policy is felt by

consumers through the so-called housing

channels of monetary policy because

housing market characteristics very a

lot across countries these differences

can help explain why some countries are

feeling the effects of rising interest

rates Now While others do not seem to

moreover shifts in these housing market

characteristics over the last few years

have made these channels weaker in

several

countries you're probably wondering what

are these housing market characteristics

today we focus on two the relative

prevalence of fixed rate mortgages in

the stock of outstanding debt and the

regional degree of house price

overvaluation to give you an example of

what we mean take a look at this chart

here the chart shows you the Share of

fixed rate mortgages outstanding across

countries what what do we mean by fixed

rate mortgage well these are just

mortgages for which monthly payments do

not change once the mortgage is issued

no matter what they don't adjust to

policy rates or exchange rates or

inflation this means that in countries

where the share of fixed rate mortgages

is high fewer borrowers will experience

an increase in their monthly mortgage

payments when the Central Bank decides

to hike interest rates as you can see in

the chart countries are quite different

in the this respect in some countries

like the us or Mexico fixed rate

mortgages are very popular whilst in

others like Australia or South Africa

much less

so similarly this chart

here shows overvaluation of house prices

in 12 countries and the variation of

this overvaluation across different

regions within certain countries as you

can see in certain countries there is a

significant variation in the degree of

evaluation and specific regions within

the country experience very hot housing

markets picture places like London or

Brussels or other similar bustling Urban

centers in contrast other countries

maintain a more balanced temperature in

their housing markets both of these

housing market characteristics affect

the strength of monetary policy

transmission to the real economy let us

show you why

we we start with fixed rate mortgages in

this chart here you see how a 1

percentage Point increase in policy

rates affects real private consumption

several quarters after the increase in

policy rates the chart in particular

shows the consumption declines much more

in countries where fixed rate mortgages

are rare compared to countries where

fixed rate mortgages are very

common this difference is actually quite

large five quarters after 1% percentage

Point increase in policy rates private

consumption is about 2 percentage points

lower in a country where fixed rate

mortgages are rare relative to a country

where fixed R mortgages are very common

if you think about it this result makes

sense in countries where fixed R

mortgages are rare many consumers will

feel the increase in policy rates in

their monthly mortgage payments because

their payments adjust relatively quickly

to changes in monetary policy and

increasing mortgage payments means that

some people may need to reduce their

spending on other non-housing related

items and aggregate demand will

suffer now let's look at the impact of

monetary policy tightening in areas

where housing markets are hot or

overvalued in these regions as you can

see in the picture

here there is a pronounced decline in

GDP per capita an increase of 1

percentage point in the policy rate

reduces GDP per capita by the same

amount one percentage point

and house prices take an even steeper

hit in overvalued areas house prices

drop 1.5 percentage points more than in

areas where prices are not

overvalued these are Big effects and

really show how household optimism and

excessive borrowing Drive housing booms

but at the same time that optimism can

reverse very quickly when interest rates

rise with serious consequence es on

house prices and GDP per

capita now let's try to bring this

evidence together by going back to our

initial question why do some countries

feel the pinch of higher policy rates in

this tightening cycle more relative to

others the heat map here can help us

understand why groups of countries that

are shaded in dark purple on the zat map

experience large changes in housing or

mortgage Market characteristics over

time which are associated with weaker

effects of monetary policy these are

countries that for example have seen an

increase in the share of fixed rate

mortgages in stock or a decline in the

degree of regional house price

overvaluation this is the case of many

advanced economies for example so what

are the key takeaways from these

analysis two main ones first the same

change in policy rates has different

effects in different countries because

of housing market characteristics are so

different second in many countries

transmission may have become weaker in

recent years precisely because of

changes in this housing market

characteristics over

time so what does this mean for policy

makers first our finding suggest that a

deep country specific understanding of

housing markets and how they evolve over

time can help calibrate monetary policy

second it may be tempting to think that

too much tightening is less costly

because fewer people have have felt the

pinch so far but overtightening or

leaving rates higher for longer could

present its own risks some countries

have short mortgage fixation periods

which means that as mortgage rates reset

consumer spending could decline sharply

this means that there is a potential for

monetary policy transmission to suddenly

become more effective suggesting a

cautious approach to rate hikes policy

makers need to be aware of how housing

market characteristics have changed in

recent years to avoid the risk of

underestimating the effects of monetary

policy which could materialize with a

delay thank

[Applause]

you Nina Alesia thank you so much great

presentation all right now it's time to

hear from from you and your voices uh

are there any questions in the

audience I sense is that a question sir

all right if you don't mind please uh

stand up and give us your name your

affiliation and a short question please

thanks um can you hear

me

hello okay Rodrigo

valderama uh Embassy Row

invest you mentioned that um I know this

effect of the the pricing inverse to the

interest rate in other words that uh

interest rates do affect the pricing of

the housing but isn't that also a

reflection of eventually inflation and

don't the pricing of doesn't the pricing

of real estate have to catch up to that

and therefore you have to have higher uh

earnings of of the population too to be

able to pay for that

right so thank you for the question um

the the chapter really looks at monetary

policy transmission and the marginal

effect of monetary policy on housing

market developments we don't look

particularly at inflation as an outcome

variable just out of we really want to

link these uh analysis to channels that

are the what Nina mentioned housing

channels and monetary policy

transmission and so we look at outcomes

that are more directly related to these

housing channels such as house prices

and real private consumption you are

right that to a certain extent

developments in house prices will feed

into inflationary Dynamics but this is

not something that we are specifically

looking at in the chapter

okay any other questions from the

audience yes the the lady there well we

have a microphone for you right hello

yes Ellen or from University of London

um how do you measure the

overvaluation um thank you for the

question so um in our analysis the way

we measure overvaluation is that we are

looking at the deviation of the price to

income ratio from the long-term Regional

average because this is what we're doing

in the regional analysis I have to

mention that there could be also other

ways to measure overvaluation but the

reason why we have opted to use a

deviation of the price to income ratio

from its long-term average is because we

need to um include as many countries as

possible in the sample and then if we

want to consider other measures of our

evaluation um we would be more limited

in terms of data

are there any more questions from the

audience for Nina and

Alesia so while our audience uh thinks

for a moment I just want to ask you know

these effects you're describing are they

symmetric are they the same you know a

tightening and a loosening environment

thank you for that thank you J for that

question yes we we do look at a symmetry

we actually look at how um well the same

change in policy rates affects the real

economy and house prices uh whether the

the impulse is a tightening impulse or a

loening one and what we find is fairly

consistent with the rest of the

literature in that Titan and impulses

typically transmit faster and to a

larger degree to real economic outcomes

what we do that is a little bit

different from what the literature is

done also is looking at how these

asymmetry plays out in relation to some

of the characteristics we study so for

example we take a look at fixed

mortgages and we look at what the

literature has defined the ref financing

channel of monetary policy it we don't

have specific information on the ease of

refinancing across countries but what we

find is that a tightening impulse that

fixed rate mortgages are more ENT in

dampening a tightening impulse than a

loening one and the mechanism is simply

that if you think about it during a

tightening episode people don't really

have an incentive to go out and

refinance their mortgages and so

monetary policy transmission of the real

to the real economy will be delayed more

in a loening cycle you could think that

if people have the opportunity to go out

and refinance their loans they have an

incentive to do so the dampening will be

much less

pronounced yes and uh I mean just to um

reiterate and and to give a short like

bottom line uh these are also findings

that are consistent with with the

literature so across different housing

and mortgage Market characteristics we

find uh more potent effects of a

tightening uh in monetary policy and the

intuition behind that essentially is

that more house households uh get um con

less constrainted when monetary policy

eases compared to households that become

constrained when monetary policy

Titans wonderful thank you any other

questions from the audience for Nina Le

yes we have a question in the the far

back yes

sir uh hi uh my name is soan I'm an

undergraduate student um when looking at

how you examin the heterogenity of

different countries that's how you

looked at Lo value ratios in household

debt I'm wondering if you considered

looking at how cours favor bankruptcy

towards the borrower or creditor and if

you think that has an impact thank you

um yeah yes we we thought about that

that of course is something that plays

probably plays a big role in the way you

know then a boom bus cycle will play out

and the aggregate effects on real

economic activity will play out

unfortunately these tend to be

institutional variables and it's quite

difficult to collect quantitative

information on this kind of indicators

for a broad set of countries and a

number of years CU you know the analysis

also relies on a fairly long time series

but in principle you're absolutely right

this is something that when you're

thinking about defaults for example will

have uh certainly a big

role great question other uh questions

from the audience yes so we have a

gentleman in a the red tie back there

it's me again um

I I'd be curious to see or understand

whether or not you felt this had

implications for real interest rates it

strikes me as though some of the impacts

of a uh long maturity fixed mortgage

Market in the United States may be

partially explanatory towards Why Us

real rates are higher and these then

have

KnockOn uh foreign exchange implications

so I just curious to get your your views

there thank

you I wish we would be able to answer

your question but unfortunately this is

beyond the scope of the analysis that we

have conducted so as Alysia mentioned so

the focus of the analytical chapter was

to look uh at the transmission of

monetary policy through housing market

and we are focusing on local housing

market characteristics because housing

markets are essentially local and also

mortgage Market characteristics which

are essentially characterizing the whole

country um so unfortunately uh that was

outside of the scope but thank you for

the

question yes a question there from that

gentleman thank you Ed and Raj for

Global fund uh my question is is there a

policy recommendation of the types of

loans that should be given uh fixed or

or not uh that's the first question and

the second is uh is there a re response

from the supply site uh that is more

robust uh depending on the type of of uh

loans that that are given if it's fixed

or

not um so on the first question on

mortgage Market design um the short

answer is we do not take a normative

stance here we're not making

recommendations on what's the optimal

design of mortgage markets but of course

there are important tradeoffs to

consider right when you thinking about

fixation periods for uh for mortgages

you're thinking about something that as

we show could have implications for

monetary policy transmission but on the

other hand there are reasons why

consumers benefit from having certainty

about the relative mortgage payments

this can have aggregate implications

that we really do not get into the

chapter so the chapter essentially takes

a very agnostic approach to to the way

we think we just take these variables as

given and then estimate how these

Dynamics play out in explaining

divergencies in aggregate

Dynamics um to the question on Supply we

do look at I assume for Supply you mean

supply of

credit housing Supply uh on that I mean

maybe Nina you want to come in on this

yeah sure I can I can take that that

question so uh basically this was uh uh

something that we were also very

interested because the literature has

shown that housing Supply constraints

are really important determinant of the

differences in house prices across

different regions uh so uh what we are

doing is that we are looking at the

transmission of monetary policy in areas

where housing Supply is more constrained

versus areas where housing Supply is

less constrained and what we find is

that the monetary policy is more potent

in areas where housing Supply uh is more

constrained and I mean if you want to

think about this like about the channels

through which these um effects operate

essentially areas where housing Supply

why is more constrained um they also

experience larger house price uh

increases and this is a component also

with a higher borrowing so housing they

they tend to experience housing booms uh

but also there is more uh leverage which

makes um households or borrowers uh more

mortgage dependent and uh also it makes

them more sensitive to the uh policy

rate changes which are then translated

to mortgage rate uh uh

changes great any more questions from

the audience yes uh hand shot up right

away we get that microphone to you sir

yes hi uh thank you very much uh for the

uh enlightening presentation I Amash

from Turkey an economist in a private

company I am wondering of how much uh of

the overall total variation uh in

consumption of consumption and inflation

uh originate uh from these two factors

that you are uh focusing on in your

study because uh if it's large could it

be also a threat to the overall a

long-term effectiveness of the monol and

transmission mechanism thank

you so um thank you for the question so

I think this is for sure something uh

very interesting but it's outside again

of the scope of our analysis because we

have not looked at how different shocks

affect consumption so that we can

disaggregate what variation of

consumption uh comes from what shock but

what we can tell you is that indeed uh

they uh depending on on the on mortgage

market and housing market

characteristics we find that consumption

is affected and also GDP per capita are

more affected in certain countries where

uh some of these characteristics that we

are studying are more more

prevalent yeah and maybe just let me

chime in on that uh the the

we're conducting essentially what is a

reduced form analysis so aggregating

these factors up and trying to

understand how what role each of them

plays in the aggregate transmission of

monetary policies is a task that is well

beyond the theoretical contributions

that even the literature the academic

literature has has achieved to this

point so you will need a model that is

able to take all of these into account

in a general equilibrium framework and

it's just a bit beyond the the scope you

know on a marginal level these

characteristics are quantitatively

relevant if you uh see the impulse

response functions which shown for

example the share of fixed right

mortgages the the Divergence in private

consumption between one state of the

world where fixed R mortgages are very

prevalent and the state of the world

where they're rare is two percentage

points which is pretty large effect so

you know on a marginal sense very

relevant in aggregate it's hard to say

given what we're doing here

all right I think we have time for maybe

one more question if there's another one

from the

audience

yes did the analysis go into the level

of saying which degree of housing

markets were I'm sorry Mark I'm just

representing private company

um what is the renters versus owners

I could not would you mind repeating

because I could not what degree of

housing markets are comprised of renters

versus

owners thank

you yeah we actually do look into that

and we find for example that you know uh

the the response of PR private

consumption or house prices um met like

the the degree of response depends a lot

on how many people own a mortgage for

example home owners ship rates per se so

what you're asking the difference you

know different countries have different

ownership rates do not seem to matter in

this sample in isolation and we think

the reason it doesn't matter in this

sample which is not to say they don't

matter uh in specific countries is

because we have a broad set of economies

in which a lot of people own homes for

example without any leverage attached to

it they just own outright and that means

that of course these people are

essentially you know they're completely

shielded from any changes in interest

rates because they don't borrow so home

ownership rates in isolation not much

difference home ownership with mortgages

very different that's that's the short

answer all right so our time is uh

drawing to a close but Alesia Nina take

us home what's the big takeaway you want

to leave our audience with yeah so two

main takeaways from today the first is

that as we mentioned before the same

change in policy rates can have very

different effects in different countries

because housing market characteristics

and mortgage Market characteristics

differ so much and the second is that

these mortgage or housing market

characteristics are not fixed they can

actually change over time and change a

lot and this can have important

implications for monetary policy the

last point that I will add is that our

findings also suggest that deep country

specific understanding uh of uh housing

market and mortgage markets

is important and also how they evolve

over time also for the calibration of

monetary

policy great and thank you everybody

thank you so much everyone Round of

Applause for Nina and Alesia