The Credit Channel of Monetary Policy

Abstract

This paper tests a credit channel of monetary policy (especially a bank-lending channel) in the housing market. We argue that the relevance of the credit channel depends on the structural features of the housing finance system, in particular efficiency and institutional organisation. We employ a structural VAR approach to analyse this issue in four European housing markets (Finland, Germany, Norway and the UK). Our results support the existence of a broad credit channel and, in some contexts, of a bank-lending channel. More importantly, the findings show across countries a clear-cut relationship between presence of a credit (bank-lending) channel, efficiency of housing finance and type of institutions active in mortgage provision.