Why house prices matter

Quarterly Bulletin 2001 Q4
Published on 01 December 2001

By Kosuke Aoki, James Proudman and Gertjan Vlieghe of the Bank’s Monetary Assessment and Strategy Division.

This article analyses the role of house prices in the transmission mechanism of monetary policy. It is argued that house prices matter because houses can be used as collateral, against which households borrow to finance housing investment and consumption. The implication of structural change in UK retail credit markets is also considered, as this may have changed the relationship between house prices and consumption.

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