The role of housing market in the effectiveness of monetary policy over the Covid-19 era

The efficiency of monetary policy substantially depends on the phase of the housing cycle since house prices are important determinants of banks’ willingness to lend. This paper presents evidence on 31 countries which shows that over the pandemic Covid-19 period, in a regime of a strong housing market, the effects of a monetary expansion are smaller than in a regime of low house prices. The findings are important for central banks which have implemented easing monetary policies responding to the Covid-19 pandemic.