Conventional and unconventional monetary policies: effects on the Finnish housing market

ABSTRACT

This paper investigates how different types of monetary policy have affected house prices in Finland, a small euro area economy that has experienced pronounced business cycles over time. The analyses are carried out using the Bayesian structural vector autoregressive approach. Monetary policy interest rate shocks and balance sheet shocks are identified using zero and sign restrictions. The results reveal that both a policy interest rate shock and a balance sheet shock have a positive and temporary impact on house prices in Finland, with the response to a balance sheet shock being smaller and fading out faster. The peak of the effect of a policy rate shock on house prices in Finland arrives faster than in the whole euro area but the magnitudes of the peak impact are similar. The effect of a balance sheet shock on house prices is not notably different in Finland to what it is in the whole euro area.

KEYWORDS:

• Monetary policy
• house prices
• BSVAR
• zero and sign restrictions
• euro area

JEL CLASSIFICATION CODES:

• C32
• E30
• E42
• E52
• R31

Acknowledgements

The author would like to thank the editor of the Baltic Journal of Economics Konstantins Benkovskis, two anonymous referees, Merike Kukk, Karsten Staehr, and Lenno Uusküla for their useful comments and suggestions. This work is partially supported by Doctoral School in Economics and Innovation, ASTRA project code 2014-2020.4.01.16-0032 (European Union, European Regional Development Fund). Declaration of interest: none.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on contributor

Signe Rosenberg is a doctoral student and works as a lecturer at Tallinn University of Technology.

Notes

1 GDP, building permits and the central bank’s total assets are expressed per capita in order to ensure that changes in those variables are not affected by changes in population and to overcome the differences in scale between the euro area and Finland.

Additional information

Funding

This work was supported by European Regional Development Fund [grant number 2014-2020.4.01.16-0032].