Working Paper: CEPR ID: DP14968
Authors: Giancarlo Corsetti; Joao Duarte; Samuel Mann
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: Monetary Policy; High-Frequency Identification; Monetary Union; Housing Market; Loan-to-Value Ratio; Adjustable Mortgage Rates
JEL Codes: E21; E31; E44; E52; F44; F45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy shocks (E39) | consumption (E21) |
| monetary policy shocks (E39) | consumer prices (P22) |
| monetary policy shocks (E39) | labor market variables (J20) |
| monetary policy shocks (E39) | housing market variables (R31) |
| mortgage market characteristics (G21) | heterogeneity in response of output to monetary policy shocks (E19) |
| mortgage market characteristics (G21) | heterogeneity in response of private consumption to monetary policy shocks (E19) |
| cross-country differences in mortgage markets (G21) | heterogeneity in transmission of monetary policy shocks (E19) |