The transmission of monetary policy: The constraints on real estate loans are significant!

By Fergus Cumming (Bank of England) and Paul Hubert (Sciences Po – OFCE, France)

Does the transmission of monetary policy depend on the state of consumers’ debt? In this post, we show that changes in interest rates have a greater impact when a large share of households face financial constraints, i.e. when households are close to their borrowing limits. We also find that the overall impact of monetary policy depends in part on the dynamics of real estate prices and may not be symmetrical for increases and decreases in interest rates.

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