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Liquidity, interest rates and house prices in the Euro area: a DSGE analysis

Rubio, Margarita; Carrasco-Gallego, José A.


José A. Carrasco-Gallego


In this paper, we propose a two-country monetary union DSGE model with housing, in order to study how different shocks contributed to the increase in housing prices and credit in the EMU prior to the crisis. One of the countries is calibrated to represent the core group in the Euro area while the other one corresponds to the periphery. First, we explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, we analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to the both economies. We find that a combination of an increase in liquidity in the Euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, can explain the increase in house prices in the Euro area and the stronger credit growth in the peripheral economies in the pre-crisis period.

Journal Article Type Article
Publication Date Jan 1, 2016
Journal Journal of European Real Estate Research
Print ISSN 1753-9269
Electronic ISSN 1753-9269
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 9
Issue 1
APA6 Citation Rubio, M., & Carrasco-Gallego, J. A. (2016). Liquidity, interest rates and house prices in the Euro area: a DSGE analysis. Journal of European Real Estate Research, 9(1), doi:10.1108/JERER-03-2015-0014
Keywords Liquidity, Interest Rates, Monetary Policy, House Prices, Collateral Effects, Asymmetric Shocks, Asset Prices
Publisher URL
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf
Additional Information This article is (c) Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing.