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Housing Market Connectedness and Transmission of Monetary Policy

Author

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  • Woo Suk Lee

    (Dong-A University)

  • Eunseong Ma

    (Yonsei University)

Abstract

This paper examines whether the degree of interconnectivity among local housing markets affects the effectiveness of the monetary transmission mechanism in the U.S. economy. We construct measures of housing market connectedness and use a state-dependent local projection method to estimate nonlinear empirical impulse responses of macroeconomic variables to a monetary policy shock. The primary finding is that monetary policy has a greater impact when regional housing markets are more synchronized. This implies that a spillover effect among local housing markets may magnify the effectiveness of monetary policy. Moreover, analyses reveal two additional findings: monetary policy is more effective i) during high-connectedness periods with expansions, and ii) when house price fluctuations are predominantly driven by a national factor rather than regional factors.

Suggested Citation

  • Woo Suk Lee & Eunseong Ma, 2023. "Housing Market Connectedness and Transmission of Monetary Policy," Working papers 2023rwp-219, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2023rwp-219
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    More about this item

    Keywords

    Housing market; connectedness; monetary policy;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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