Monetary Policy and its Impact on Residential Property Prices in Selected EU Countries

My bachelor thesis deals with the issue of central banks, respectively their transmission mechanism of setting interest rates and its impact on residential property prices in selected EU countries. Its aim and hypothesis is whether monetary policy affects residential property prices. It defines the theoretical basis of monetary policy, describes the transmission mechanism and estate market of residential properties. Furthermore, we define the price bubble and methodological and statistical problems with measuring property prices. The empirical part of the thesis uses linear regression on the example of the Czech Republic using quarterly data from the first quarter of the year 2005 to the first quarter of the year 2019 and panel regression with 8 cross-sectional units, which are non- euro area countries, using annual data from 2004 to 2018. Using the corrected heteroscedasticity method we found, that CNB's monetary policy has a negative impact on the house price index. If the repo rate set by the CNB increases by one percentage point, the house price index will decrease by 2,36 %. For panel regression we use fixed effects and came to a similar conclusion – that central banks negatively affect the house price index. If the nominal interest rates rises by one percentage point, the house price index will decrease by 3,06 units. The conclusions of empirical models are in accordance with studies from Case and Shiller (2003) or Bjørnland and Jacobsen (2010), however it contradicts the study from Hlaváček and Komárek (2011).