Download HWS 2007 Teil I: Finanzmathematik

Housing Channels of Monetary Policy Transmission
in European Industrial and Transition Countries
Stanimira Milcheva and Steffen Sebastian
University of Regensburg
Motivation
What is the role of the housing market in the monetary policy
transmission to consumption and residential investment?
Hypothesis: Housing markets play an important role for the
transmission of monetary shocks to consumption and investment in
countries with flexible and well developed mortgage markets.
Milcheva • Housing Channels of Monetary Policy Transmission
Housing Channels of
Monetary Policy Transmission
Monetary policy shock
Interest rate
channel
Credit channel
House Prices
Cost of
capital
effect
Tobin‘s
Q effect
Residential investment
Interest
rate
income
effect
Housing
wealth
effect
Rents
and
savings
effect
Collateral
effect
Consumption
Milcheva • Housing Channels of Monetary Policy Transmission
Institutional factors
Country
Year
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
UK
US
Bulgaria
Czech Republic
Estonia
Hungary
Lithuania
Poland
Slovenia
Mortgage
Mortgage
market
debt outst.
index of
(from MFIs)
completeness
to GDP
2008
2008
31%
25.3%
34%
39.8%
82%
95.3%
49%
47.5%
23%
35.9%
28%
46.1%
35%
32.0%
39%
80.0%
26%
19.8%
71%
99.1%
59%
53.3%
63.3%
40%
62.0%
66%
60.6%
58%
80.5%
98%
77,0%
11.6%
-
10.8%
39.2%
14.0%
17.3%
15.6%
9.1%
Average
typical
LTV ratio
Total outst.
securitization
from resid.
lending
2008
84%
80%
80%
70%
91%
72%
58%
83%
65%
100%
70%
56%
61%
80%
77%
75%
80%-90%
80,0%
80,0%
70,0%
91,0%
72,0%
58,0%
83,0%
65,0%
100,0%
70,0%
56,0%
61,0%
80,0%
77,0%
75,0%
0%
Prevailing
type of
mortgage
rate
2007
variable
fixed (>10y)
fixed
variable
fixed (>10y)
fixed (>5y)
variable
variable
variable
fixed (>5y)
variable
variable
variable
fixed (>1y)
variable
initial fixed
variable
56%
100%
61%
75%
90%
61%
56%
0%
48%
0%
1%
0%
initial fixed
fixed until 2005
variable
variable
variable
Mortgage
equity
withdraw
(MEW)
2003-2007
no
no
yes
yes
no
no
no
limited
no
yes
yes
limited
yes
yes
yes
-
Refinancing
(fee-free
prepayment)
-
-
no
no
yes
yes
no
no
no
yes
no
no
no
no
no
yes
limited
yes
-
Milcheva • Housing Channels of Monetary Policy Transmission
Methodology
•
Estimation of vector autoregression (VAR) models for 21
European countries and the US.
•
Counterfactual simulation of impulse responses.
(see Bernanke et al. (1997))
Milcheva • Housing Channels of Monetary Policy Transmission
Existing Literature
Ludvigson et al. (2002): SVAR with total wealth, counterfactual simulation, US, 1966:1 –
2000:3, insignificant effect of the wealth channel on consumption in the US.
Giuliodori (2005): VAR with house prices, counterfactual simulation, 9 European industrial
countries, 1979:3 – 1998:4, house prices play an important role for the transmission of
monetary policy shocks to GDP in countries with well developed housing markets, such as
Sweden, Spain, the Netherlands.
Elbourne (2008): SVAR with house prices, counterfactual simulation, UK, 1987:M1 –
2003:M5, house prices play a small role in the monetary policy transmission mechanism.
Milcheva • Housing Channels of Monetary Policy Transmission
Contribution
•
A more in-depth study of the monetary policy transmission through housing
•
Broader sample of countries, including Central and Eastern European (CEE)
countries
•
Same model applied to all countries
•
Accounting for structural breaks
•
Time period after the liberalisation of the mortgage markets
•
Specifying the role of each housing channel on consumption and investment
•
Accounting for significance of simulated impulse responses
Milcheva • Housing Channels of Monetary Policy Transmission
Data
Countries
•
Industrial countries: AU, BE, DK, DE, GR, FI, FR, IR, IT, NL, NO, ES,
SE, UK, US
•
CEE countries: BG, CZ, EE, HU, LT, PL, SI
Estimation period
Variables
From mid-1990s to 2008 (quarterly)
consumer price index
household consumption
gross fixed capital formation in housing
house price index
money market rate
Milcheva • Housing Channels of Monetary Policy Transmission
Results: Shock in IR
HP
Milcheva • Housing Channels of Monetary Policy Transmission
Results: Shock in IR
HP
Milcheva • Housing Channels of Monetary Policy Transmission
Countries with significant
housing wealth/collateral effects
Dark blue line: estimated impulse response of consumotion to an interest rate shock., red line: simulated impulse response.
Milcheva • Housing Channels of Monetary Policy Transmission
Countries with significant
housing wealth/collateral effects
Dark blue line: estimated impulse response of consumotion to an interest rate shock., red line: simulated impulse response, blue line: simulated respinse when GFCF=0 in consumotion equation.
Milcheva • Housing Channels of Monetary Policy Transmission
Results: Shock in HP
GFCF
Milcheva • Housing Channels of Monetary Policy Transmission
Countries with significant
Tobin‘s Q effects
Dark blue line: estimated impulse response, red line: simulated impulse response of consumotion to an interest rate shock.
Milcheva • Housing Channels of Monetary Policy Transmission
Thank you!
Milcheva • Housing Channels of Monetary Policy Transmission
Milcheva • Housing Channels of Monetary Policy Transmission
Milcheva • Housing Channels of Monetary Policy Transmission