The Role of House Prices in Monetary Transmission Mechanism: Evidence from Turkish Economy

It is possible for central banks to carry out their policies effectively by making the correct assessment of the reflection of their monetary policy decisions on real economic activities. For this reason, it is important to examine the effects of applied policies on real economic activities and inflation. Accordingly, the 2008 global financial crisis revealed the importance of the relationship between monetary policy, house prices, and real economic activity, in other words, the channel of transmission of house prices. As a matter of fact, developments in the housing industry have a significant impact on the process leading up to the 2008 Global financial crisis. In this context, after the 2008 Global financial crisis, both the role of house prices in monetary policy implementation and the function of house prices in the transmission mechanism has begun to be questioned. In this study, the effectiveness of the house prices transmission channel, a subgroup of the asset prices channel based on the experience of the 2008 Global financial crisis, was empirically analyzed based on the Turkish economy. The VAR model has been preferred as a method of empirical analysis. The analysis covers the period 2010-2019, and the monthly data set is used in the analysis. The results of the analysis show that monetary policy affects house prices, but house prices do not have a statistically significant effect on housing investment, industrial production index, and inflation. Related results show that the housing prices transmission channel is not active in the Turkish economy. Key Words: Monetary Transmission Mechanism, House Prices, VAR Model JEL Classification: E52