Skip to main content
SpringerLink
Log in

Monetary policy and real estate prices: a disaggregated analysis for Switzerland

  • Original Paper
  • Published:
International Economics and Economic Policy Aims and scope Submit manuscript

Abstract

Most empirical studies found that monetary policy has a significant effect on house prices while stock markets remain unaffected by interest rate shocks. In this paper we conduct a more detailed analysis by studying various sub-segments of the real estate market. Employing a new dataset for Switzerland we estimate vector autoregressive models and find positive interest rate shocks to have adverse effects on house and condominium prices on the one hand and rental prices on the other. Commercial property prices as stock markets do not react on interest rate variations.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

Notes

  1. A similar view is expressed in Bordo et al. (2002, 2003).

  2. See also Schwartz (2002) for a similar line of argument.

  3. Assenmacher-Wesche and Gerlach (2010), Bean (2004) and Kohn (2009) discuss various prerequisites for a successful “leaning against the wind”-strategy of monetary policy.

  4. We review this literature in more detail in the section 2.

  5. Countries with considerably higher home ownership rates are Spain (82 %), Ireland (77 %) and the United Kingdom (68 %). With a rate of 42 % home-ownership plays a more important role even in Germany (Bourassa and Hoesli 2010).

  6. Data are extracted directly from the SNB’s homepage, see http://www.snb.ch/de/iabout/stat/statpub/statmon/stats/statmon/statmon_O1_4.

  7. These numbers coincide with the shares reported by the residential real estate company Wuest & Partner for Switzerland. Similar sizes of the real estate sub-segments are reported e.g. for Germany (BulwienGesa 2009).

  8. Data are extracted directly from the SNB’s homepage, see http://www.snb.ch/de/iabout/stat/statpub/statmon/stats/statmon/statmon_O1_4.

  9. The same ordering is used e.g. in Assenmacher-Wesche and Gerlach (2010).

  10. A complete documentation of all unit root tests can be provided by the authors upon request.

  11. Results of the Johansen Cointegration tests are listed in the appendix. See also, e.g., Belke et al. (2008b), Dreger and Wolters (2009a, b) who follow a similar approach.

  12. A detailed view of the VAR regression results can be obtained by the authors upon request.

  13. See: http://www.snb.ch/de/iabout/stat/statpub/statmon/stats/statmon/statmon_O3

  14. See: http://www.snb.ch/de/iabout/stat/statpub/statmon/stats/statmon/statmon_O3

References

  • Adalid R, Detken D (2007) Liquidity shocks and asset price boom/bust cycles. ECB Working Paper 732, European Central Bank

  • Ahearne AG, Ammer J, Doyle BM, Kole LS, Martin RF (2005) House prices and monetary policy: a cross-country study. International Finance Discussion Paper 841, Board of Governors of the Federal Reserve System

  • Assenmacher-Wesche K, Gerlach S (2010) Financial structure and the impact of monetary policy on asset prices. Swiss National Bank & Goethe University Frankfurt

  • Baks K, Kramer, C (1999) Global liquidity and asset prices: measurement, implications and spillovers. IMF Working Paper 168

  • Bean C (2004) Asset-prices, monetary policy and financial stability: a central banker’s view. Speech given at the American Economic Association Annual Meeting, San Diego

  • Belke A, Orth W, Setzer R (2008a) Sowing the seeds of the subprime crisis—Does global liquidity matter for housing and other asset prices? Int Econ Econ Pol 5:403–424

    Article  Google Scholar 

  • Belke A, Orth W, Setzer R (2008b) Global liquidity and house prices: a VAR analysis for OECD countries. 21st Australasian Finance and Banking Conference 2008 Paper

  • Belke A, Orth W, Setzer R (2010) Liquidity and the dynamic pattern of asset price adjustment: a global view. J Bank Finance 34:1933–1945

    Article  Google Scholar 

  • Bernanke B (2002) Asset-price “bubbles” and monetary policy. Speech given before the New York Chapter of the National Association for Business Economics, New York, October 15

  • Bernanke B, Gertler M (1999) Should central banks respond to movements in asset prices? Am Econ Rev 91(2):253–257

    Article  Google Scholar 

  • Bernanke B, Gertler M (2001) Monetary policy and asset price volatility. Econ Rev Fed Reserv Bank Kans City 84(4):17–52

    Google Scholar 

  • Bordo M, Jeanne O (2002) Monetary policy and asset prices: does ‘benign neglect’ make sense? Int Finance 5(2):139–164

    Article  Google Scholar 

  • Bordo M, Wheelock DC (2004) Monetary policy and asset prices: a look back at past U.S. stock market booms. Fed Reserv Bank St Louis Rev 86(6):19–44

    Google Scholar 

  • Bordo M, Dueker MJ, Wheelock DC (2002) Aggregate price shocks and financial stability: a historical analysis. Econ Inq 40(4):521–538

    Article  Google Scholar 

  • Bordo M, Dueker MJ, Wheelock DC (2003) Aggregate price shocks and financial stability: The United Kingdom, 1769–1999. Explor Econ Hist 40(2):143–169

    Article  Google Scholar 

  • Borio C, Lowe P, (2002) Asset prices, financial and monetary stability: exploring the Nexus. Working Paper 114, Bank of International Settlements

  • Bourassa SC, Hoesli M (2010) Why do the Swiss rent? J R Estate Finance Econ 40:286–309

    Article  Google Scholar 

  • Brissimis S, Magginas N (2006) Forward looking information in VAR models and the prize puzzle. J Monetary Econ 53:1225–1234

    Article  Google Scholar 

  • Bulwien H (2009) Entwicklungsperspektiven des Immobilienmarktes. Vortrag BFW Nord Landesverbandstag in Hamburg, 25.2.2009

  • Bundesamt für Statistik Schweiz (2011) http://www.bfs.admin.ch/. Accessed 1 March 1 2011

  • Carliner G (1974) Determinants of home ownership. Land Econ 50(2):109–119

    Article  Google Scholar 

  • Castelnuovo E, Surico P (2010) Monetary policy, inflation expectations and the price puzzle. Economic Journal, Royal Economic Society 120 549:1262–1283

    Google Scholar 

  • Cecchetti SG, Genberg H, Lipsky J, Wadhwani S (2000) Asset prices and central bank policy. Geneva Reports on the World Economy. Vol. 2, CEPR

  • Cecchetti SG, Rupert P (1996) Mortgage interest deductibility and housing prices. Economic Commentary. Federal Reserve Bank of Cleveland. Issue Feb 1

  • Cecchetti SG, Genberg H ,Wadhwani S (2002) Asset prices in a flexible inflation targeting framework. NBER Working Paper 8970

  • Christiano LJ, Eichenbaum M, Evans CL (1996) The effects of monetary policy shocks: evidence from the flow of funds. Rev Econ Stat 78(1):16–34

    Article  Google Scholar 

  • Christiano LJ, Eichenbaum M, Evans CL (1999) Monetary policy shocks: what have we learned and to what end? In: Taylor JB, Woodford M (Eds) Handbook of macroeconomics, Volume 1A. Elsevier, pp. 65–148

  • Christiano LJ, Motto R, Ilut CL, Rostagno M (2008) Monetary policy and stock market boom-bust cycles. Working Paper 955, European Central Bank

  • Coleman A, Scobie GM (2009) A simple model of housing rental and ownership with policy simulations. Motu Working Paper 09–08. Motu Economic and Public Policy Research

  • Davidoff T (2006) Labor income, housing prices and homeownership. J Urban Econ 59:209–235

    Article  Google Scholar 

  • Demary M (2009) The link between output, inflation, monetary policy and housing price dynamics. MPRA Paper 15978, Munich University

  • Detken C, Smets F (2004) Asset price booms and monetary policy. ECB Working Paper 364. European Central Bank

  • Dreger C, Wolters J (2009a) Geldpolitik und Vermögensmärkte. Vierteljahreshefte zur Wirtschaftsforschung 78(1):56–65

    Article  Google Scholar 

  • Dreger C, Wolters J (2009b) Liquidity and asset prices—how strong are the linkages? Discussion Paper 860. German Institute for Economic Research, Berlin

    Google Scholar 

  • Dupor BI (2005) Stabilizing non-fundamental asset price movements under discretion and limited information. J Monetary Econ 52:727–747

    Article  Google Scholar 

  • Favero CA (2001) Applied macroeconometrics. Oxford University Press

  • Fu Y (1995) Uncertainty, liquidity, and housing choices. Reg Sci Urban Econ 25:223–236

    Article  Google Scholar 

  • Giese JV, Tuxen CK (2007) Global liquidity and asset prices in a cointegrated VAR. Working Paper. Nuffield College. University of Oxford and Department of Economics. Copenhagen University

  • Giordani P (2004) An alternative explanation of the price puzzle. J Monetary Econ 51:1271–1296

    Article  Google Scholar 

  • Giuliodori M (2005) The role of house prices in the monetary transmission mechanism across European countries. Scot J Polit Econ 52:519–543

    Article  Google Scholar 

  • Goodhart C, Hofmann B (2008) House prices, money, credit and the macroeconomy. Oxf Rev Econ Pol 24:180–205

    Article  Google Scholar 

  • Goodman AC (1988) An econometric model of housing price, permanent income, tenure choice and housing demand. J Urban Econ 23:327–353

    Article  Google Scholar 

  • Goodman AC (1990) Demographics of individual housing demand. Reg Sci Urban Econ 20(1):83–102

    Article  Google Scholar 

  • Greiber C, Setzer R (2007) Money and housing: evidence for the Euro area and the US. Deutsche Bundesbank Discussion Paper 07/12, Deutsche Bundesbank

  • Gruber J, Lee GS (2008) Bank lending effect on german commercial property prices. University of Regensburg. Working Paper in Business, Economics and Management Information Systems 428, University of Regensburg

  • Hanson MS (2004) The prize puzzle reconsidered. J Monetary Econ 51:1385–1413

    Article  Google Scholar 

  • Haurin D (1991) Income variability, homeownership, and housing demand. J Hous Econ 1:60–74

    Article  Google Scholar 

  • Haurin D, Hendershott P, Wachter S (1996a) Expected home ownership and real wealth accumulation of youth. NBER Working Paper No. W5629

  • Haurin D, Hendershott P, Wachter S (1996b) Borrowing constraints and the tenure choice of young households, NBER Working Paper 5630

  • Henderson J, Ioannides YM (1983) A model of housing tenure choice. Am Econ Rev 73:98–113

    Google Scholar 

  • Henderson J, Ioannides YM (1986) Tenure choice and the demand for housing. Economica 53:231–246

    Article  Google Scholar 

  • Henderson J, Ioannides YM (1989) Dynamic aspects of consumer decisions in housing markets. J Urban Econ 26(2):212–230

    Article  Google Scholar 

  • IAZI AG–CIFI SA (2010) http://www.iazicifi.ch/de/transaktionsindizes.php

  • Ioannides YM (1979) Temporal risks and the tenure decision in housing markets. Econ Lett 4:293–297. North-Holland Publishing Company

    Google Scholar 

  • Ioannides YM, Kan K (1996) Structural estimation of residential mobility and housing tenure choice. J Reg Sci 36:335–363

    Article  Google Scholar 

  • Jarocinsky M, Smets F (2008) House prices and the stance of monetary policy. Fed Res Bank St Louis Rev 90:339–365

    Google Scholar 

  • Jordan TJ, Kugler P (2004) Implementing Swiss monetary policy: steering the 3M-Libor with repo transactions. Swiss J Econ Stat 140(3):381–393

    Google Scholar 

  • Kohn DL (2009) Monetary policy and asset prices revisited. Cato J 29(1):31–44

    Google Scholar 

  • Linnemann P, Megbolugbe IF, Wachter SM, Cho M (1997) Do borrowing constraints change U.S. homeownership rates? J Hous Econ 6:318–333

    Article  Google Scholar 

  • Loayza N, Schmidt-Hebbel K (2002) Monetary policy functions and transmission mechanisms: an overview. In: Loayza N (ed) Monetary policy: rules and transmission mechanisms. Santiago, Central Bank de Chilé, pp 1–20

    Google Scholar 

  • McCarthy K (1976) The household life-cycle and housing. Papers Reg Sci 37(1):55–80

    Article  Google Scholar 

  • Mills ES (1990) Housing tenure choice. J R Estate Finance Econ 3:323–331

    Google Scholar 

  • OECD Main Economic Indicators (2010) http://www.oecd.org/document/54/0,3746,en_2649_33715_15569334_1_1_1_1,00.html.

  • Ortalo-Magné F, Rady S (2002) Tenure choice and the riskiness of non-housing consumption. J Hous Econ 11:266–279

    Article  Google Scholar 

  • Platen E, Semmler W (2009) Asset markets and monetary policy. QFRC Research Paper 247

  • Roffia B, Zaghini A (2007) Excess money growth and inflation dynamics. Int Finance 10:241–280

    Article  Google Scholar 

  • Rötheli A, Kühni B (2009) Real estate in Switzerland: matching foreign investors’ requirements with Swiss law. Corp R Estate 2008(2009):23–27

    Google Scholar 

  • Roth J-P (2002) Immobilienpreise und Geldpolitik. Präsidentenkonferenz Hauseigentümerverband Schweiz, 30. November 2002

  • Rüffer R, Stracca L (2006) What is global excess liquidity and does it matter? ECB Working Paper 696, European Central Bank

  • Rusnák M, Havránek T, Horváth R (2011) How to solve the price puzzle? A meta-analysis. Working Paper Series Czech National Bank, 2/2011

  • Schwartz AJ (2002) Asset price inflation and monetary policy. NBER Working Paper 9321, National Bureau of Economic Research

  • Sims CA (1980) Macroeconomics and reality. Econometrica 48:1–48

    Article  Google Scholar 

  • Sims CA (1992) Interpreting the macroeconomic time series facts: the effects of monetary policy. Eur Econ Rev 36(5):975–1000

    Article  Google Scholar 

  • Sims CA, Stock JH, Watson MW (1990) Inference in linear time series models with some unit roots. Econometrica 58(1):161–182

    Article  Google Scholar 

  • Smets F (1997) Financial asset prices and monetary policy: theory and evidence. Working Paper 47. Bank for International Settlements

  • Smith MH, Smith G (2007) Homeownership in an uncertain world with substantial transaction costs. J Reg Sci 47 5 881(16)

  • Sousa J, Zaghini A (2006) Global monetary policy shocks in the G5: a SVAR approach. CFS Working Paper Series 2006/30, Center for Financial Studies, Frankfurt a.M

  • Suisse C (2010) Swiss Issues Immobilien, Immobilienmarkt 2010. Fakten und Trends, Zurich

    Google Scholar 

  • Swiss Exchange (2010) http://www.six-swiss-exchange.com/indices/shares/spi_family_de.html

  • Swiss National Bank (2007) Generalsekretariat Schweizerische Nationalbank. Ein Kurzporträt, Zürich

    Google Scholar 

  • Swiss National Bank (2012) www.SNB.ch

  • Tsharakyan A, Zemčik P (2011) Rent deregulation, tenure choice and real estate price expectations. CERGE-EI. Czech Republic

  • Wolden Bache I, Leitemo K (2008) The price puzzle: mixing the temporary and permanent monetary policy shocks. Working Paper Monetary Policy Department Norges Bank

  • Wuest and Partner (2010) http://www.wuestundpartner.com/home/index.phtml

Download references

Author information

Authors and Affiliations

  1. Helmut-Schmidt-University Hamburg, Postfach 700822, 22008, Hamburg, Germany

    Michael Berlemann & Julia Freese

Authors
  1. Michael Berlemann
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Julia Freese
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Michael Berlemann.

Appendix

Appendix

Results of the Johansen Cointegration tests for all VAR specifications

Table 1 Cointegration test of the benchmark VAR
Full size table
Table 2 Cointegration test of the joint VAR
Full size table

Rights and permissions

Reprints and permissions

About this article

Cite this article

Berlemann, M., Freese, J. Monetary policy and real estate prices: a disaggregated analysis for Switzerland. Int Econ Econ Policy 10, 469–490 (2013). https://doi.org/10.1007/s10368-012-0222-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10368-012-0222-7

Keywords

JEL classification

Search

Navigation