Do house prices play a role in unconventional monetary policy transmission in Japan?

Abstract

This paper comprehensively analyses the role of house prices in the unconventional monetary transmission mechanism in Japan. The quantitative effects of unconventional monetary policy shocks are examined through structural vector autoregression with the extension using time-varying parameters. The empirical results show that expansionary monetary policy shocks lead to increased household consumption, residential investment, inflation, housing loans, and house prices. Simultaneously, a positive house price shock also increases household consumption, residential investment, inflation, and housing loans. Combining these two results, an accelerator function of house prices in policy transmission is confirmed. On the other hand, the magnitude of responses to shocks varies across different monetary policy regimes. However, a significant and persistent response of house prices to the policy shock provides an extra transmission channel even if the real effects of monetary policy on output and inflation are diminished, revealing the contribution of house prices is non-trivial but pronounced.