The Role of House Prices in the Monetary Transmission Mechanism

Abstract

Housing markets have an essential role in the process leading up to the 2008 financial crisis. The problems in the housing markets started with monetary tightening. These developments revealed the importance of the relationship between monetary policy, housing markets, and the real sector. Besides, the role of housing prices in the monetary transmission mechanism has begun to examine. In this context, the paper aims to investigate the role of housing prices in the monetary transmission mechanism in the Turkish economy empirically. The analysis method of the study is Structural VAR. The analysis period is 2011:1-2019:4. According to the results of the analysis, monetary policy affects housing prices. However, housing prices have no impact on consumption and housing investment. When these two situations evaluated together, housing prices have no role in the monetary transmission mechanism. On the other hand, the analyses indicate that the Central Bank of the Republic of Turkey closely followed the housing prices. In this framework, it reacts rapidly to the appropriate policy response.