One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area

78 Pages Posted: 23 Jul 2020 Last revised: 16 Aug 2020

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

University of Cambridge; University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

João B. Duarte

New University of Lisbon - Nova School of Business and Economics

Samuel Mann

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

Abstract

We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity. We find this to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. We build a small open economy model featuring a housing sector and calibrate it to Spain. We show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the response of output and private consumption.

Keywords: Adjustable Mortgage Rates, High-Frequency Identification, housing market, Loan-to-value Ratio, monetary policy, monetary union

JEL Classification: E21, E31, E44, E52, F44, F45

Suggested Citation

Corsetti, Giancarlo and Duarte, João B. and Mann, Samuel, One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area (June 2020). CEPR Discussion Paper No. DP14968, Available at SSRN: https://ssrn.com/abstract=3650080

Giancarlo Corsetti (Contact Author)

University of Cambridge ( email )

University of Rome III - Department of Economics ( email )

via Ostiense 139
Rome, 00154
Italy
+39 06 5737 4056 (Phone)
+39 06 5737 4093 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

João B. Duarte

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Samuel Mann

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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