TY - BOOK

T1 - Essays on monetary policy, credit and housing.

AU - Margaris, Aristotelis

PY - 2023

Y1 - 2023

N2 - The present thesis consists of two independent chapters. The contributionof the thesis lies in the field of monetary policy, particularly in the conjunction of monetary policy with credit and housing. The first chapter contributes to the literature by shedding light on the interaction of monetarypolicy with Government Sponsored Enterprises (GSEs) in the U.S. and revealing their crucial role in the transmission of monetary policy through financial intermediaries. The analysis suggests that GSEs expand their sharein the mortgage market after a monetary policy tightening. We discussthree reasons behind this result and then focus on its implication on thetransmission mechanism of monetary policy shocks. We conduct a counterfactual experiment to measure the effects of a monetary tightening onthe economy when GSEs’ future market share is constrained not to respondto this shock. We document a sizable difference between the standard andthe counterfactual impulse responses. Under the counterfactual, monetarypolicy is more effective in contracting real activity, prices and increasingcredit cost. Thus GSEs’ share expansion after a monetary tightening erodesthe effects of the latter on the economy. We link those findings with thebank-lending channel of monetary policy. We argue that GSEs mitigate theincrease in the cost of financing for financial intermediaries after a monetary tightening. As the bank-lending channel predicts, a relatively lowercost of liquid funds implies a smaller increase in external finance premium and, therefore, a lower impact of a monetary tightening on the economy.The second chapter constitutes the first body of research to provide estimates of the dynamic effects of monetary policy on regional house pricesin the U.K. and reveal heterogeneity in the responses of regional houseprices to monetary policy shocks. The existing literature dedicates muchattention to differences in local housing supply to interpret the heterogenous response of regional house prices to economic shocks. The chaptercontributes to this debate by showing that heterogeneous regional houseprice developments after a monetary policy shock relate to borrowing constraints and the household balance sheet compositions in the region. Tothe best of our knowledge, this thesis is the first which adds this dimension to regional house price heterogeneity. After a monetary expansion, inregions with low loan-to-income ratios, households exploit lower mortgagerates and increase regional housing demand via intertemporal substitution.On the contrary, in regions with low housing affordability, a large share ofhouseholds are constrained to borrowing and cannot increase housing demand. Consequently, house prices appreciate relatively less after a monetary policy expansion.

AB - The present thesis consists of two independent chapters. The contributionof the thesis lies in the field of monetary policy, particularly in the conjunction of monetary policy with credit and housing. The first chapter contributes to the literature by shedding light on the interaction of monetarypolicy with Government Sponsored Enterprises (GSEs) in the U.S. and revealing their crucial role in the transmission of monetary policy through financial intermediaries. The analysis suggests that GSEs expand their sharein the mortgage market after a monetary policy tightening. We discussthree reasons behind this result and then focus on its implication on thetransmission mechanism of monetary policy shocks. We conduct a counterfactual experiment to measure the effects of a monetary tightening onthe economy when GSEs’ future market share is constrained not to respondto this shock. We document a sizable difference between the standard andthe counterfactual impulse responses. Under the counterfactual, monetarypolicy is more effective in contracting real activity, prices and increasingcredit cost. Thus GSEs’ share expansion after a monetary tightening erodesthe effects of the latter on the economy. We link those findings with thebank-lending channel of monetary policy. We argue that GSEs mitigate theincrease in the cost of financing for financial intermediaries after a monetary tightening. As the bank-lending channel predicts, a relatively lowercost of liquid funds implies a smaller increase in external finance premium and, therefore, a lower impact of a monetary tightening on the economy.The second chapter constitutes the first body of research to provide estimates of the dynamic effects of monetary policy on regional house pricesin the U.K. and reveal heterogeneity in the responses of regional houseprices to monetary policy shocks. The existing literature dedicates muchattention to differences in local housing supply to interpret the heterogenous response of regional house prices to economic shocks. The chaptercontributes to this debate by showing that heterogeneous regional houseprice developments after a monetary policy shock relate to borrowing constraints and the household balance sheet compositions in the region. Tothe best of our knowledge, this thesis is the first which adds this dimension to regional house price heterogeneity. After a monetary expansion, inregions with low loan-to-income ratios, households exploit lower mortgagerates and increase regional housing demand via intertemporal substitution.On the contrary, in regions with low housing affordability, a large share ofhouseholds are constrained to borrowing and cannot increase housing demand. Consequently, house prices appreciate relatively less after a monetary policy expansion.

U2 - 10.17635/lancaster/thesis/2082

DO - 10.17635/lancaster/thesis/2082

M3 - Doctoral Thesis

PB - Lancaster University

ER -