Navigating the housing channel of monetary policy across euro area regions

This paper assesses the role of the housing market in the transmission of conventional and unconventional monetary policy across euro area regions. By exploiting a novel regional dataset on housing-related variables, a structural panel VAR analysis shows that monetary policy propagates effectively to economic activity and house prices, albeit in a heterogeneous fashion across regions. Although the housing channel plays a minor role in the transmission of monetary policy to the economy on average, its importance increases in the case of unconventional monetary policy. We also explore the determinants of the diverse transmis- sion of monetary policy to economic activity across regions, finding a larger impact in areas with lower labour income and more widespread homeownership. An expansionary monetary policy can thus be effective in mitigating regional inequality via its stimulus to the economy.