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Monetary policy and housing markets: insights using a novel measure of housing supply elasticity

Author

Listed:
  • Ryan Niladri Banerjee
  • Denis Gorea
  • Deniz Igan
  • Gabor Pinter

Abstract

This special feature explores how the responsiveness of new housing supply to house prices (the supply elasticity) affects the transmission of monetary policy. We document a long-term decline in the supply elasticity of new housing and find that a less elastic supply amplifies the impact of monetary policy on house prices compared with rents. This disparity could raise questions about the measurement of housing costs in inflation measures targeted by central banks, as typically rents, rather than house prices, directly enter consumer price indices. Our findings highlight the importance of considering changing housing supply conditions in monetary policy formulation.

Suggested Citation

  • Ryan Niladri Banerjee & Denis Gorea & Deniz Igan & Gabor Pinter, 2024. "Monetary policy and housing markets: insights using a novel measure of housing supply elasticity," BIS Quarterly Review, Bank for International Settlements, December.
  • Handle: RePEc:bis:bisqtr:2412c
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    References listed on IDEAS

    as
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    5. Richard K. Green & Stephen Malpezzi & Stephen K. Mayo, 2005. "Metropolitan-Specific Estimates of the Price Elasticity of Supply of Housing, and Their Sources," American Economic Review, American Economic Association, vol. 95(2), pages 334-339, May.
    6. Choi, Sangyup & Willems, Tim & Yoo, Seung Yong, 2024. "Revisiting the monetary transmission mechanism through an industry-level differential approach," Journal of Monetary Economics, Elsevier, vol. 145(C).
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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