The effects of conventional and unconventional monetary policies on the Euro area housing market

This master’s thesis focuses on the effects of conventional and unconventional mone-tary policies on Euro area housing markets. The financial crisis of 2008 originated from over-heated U.S housing markets, where the initial problems in the housing markets had tremendous spill-over effects on the whole global economy. Housing accounts for over half of the Euro area household net worth (ECB, 2020b), and is usually acquired through bank debt financing, thus fluctuations in the Euro area housing prices can have contagious effects on the whole financial system. After the crisis, the key interest rates were near or below zero, and the European Cen-tral Bank (ECB) started its Quantitative Easing (QE) programs. The Euro area sovereign debt crisis also expanded the ECB’s balance sheet. Like Rosenberg (2020) and Elbourne et al. (2018), this expansionary monetary policy is defined as unconventional monetary policy in this paper, and conventional monetary policy is seen as changes in the short-term interest rate. This master’s thesis examines the impacts of traditional and unconventional monetary policy on European housing markets using a Vector Autoregression (VAR) model. This model has been applied to Euro area aggregate , Germany, and Italy. The findings of this study, which differ somewhat from previous research, suggest that the expansion of the ECB’s balance sheet does not significantly impact residential property prices in the Euro area. However, policy rate shocks appear to have a more persistent effect. These results have significant implications, indicating that conventional monetary poli-cy shocks may have a more enduring and potent effect on economic indicators than ex-pansionary unconventional monetary policy measures.