Gergely Kiss

The Role of the Housing Market in Monetary Transmission - Evidence from Hungary

Abstract The housing market becomes more essential in monetary policy. This paper attempts to analyse the role of the housing market in the monetary transmission mechanism with special focus on Hungary. The study first summarizes the experiences of developed countries, paying special attention to issues arising from the monetary union. It then examines the developments in the Hungarian housing and mortgage markets in the last years, as well as the expected developments and changes attendant to the adoption of the euro. Using different econometric techniques such as time series, panel and pooled-mean-group (PMG) estimators, the study investigates the link between macro-economic variables and house prices in Hungary, and the effect of monetary policy on housing investment and consumption. Apart from the standard transmission channels, we identified two other effects, which influence the role of the Hungarian housing market in monetary transmission. Looking ahead, the expected effects of the single monetary policy of the eurozone on the Hungarian markets are also discussed.