Credit market frictions, captured by mortgage spreads, are potentially an equally important driver behind mortgage rate innovations as monetary policy. Possibly a significant driver of business cycles. Yet, the effect of such shocks on the economy has barely received any attention in empirical research. By estimating a SVAR for 12 EU countries, I find that mortgage spread shocks have a significant effect on GDP, consumption, residential investment and house prices. The magnitude of their effects is comparable to a monetary policy shock. I also find that the transmission mechanism of such shocks is influenced by mortgage market characteristics. A high mortgage debt-to-GDP ratio and widespread use of mortgage equity withdrawal, compared to a lower ratio and less or no use, potentially imply a stronger response in house prices and residential investment of 0.5 and 1 percent respectively.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:uu-415538 |
| Date | January 2020 |
| Creators | Hansson, Denise |
| Publisher | Uppsala universitet, Nationalekonomiska institutionen |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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