The Relationship between the Mortgage Market and Price Stability in the Czech Economy

This bachelor’s thesis analyzes the relationship between the mortgage market and price stability in the Czech economy. The theoretical part describes the transmis- sion mechanism of monetary policy with a focus on the mortgage market. It also outlines macroprudential policy tools (LTV, DSTI, DTI), inflation, and its poten- tial connection to developments in real estate prices. The theoretical foundations are supported by the work of Mishkin (2007), Kuttner (2014), and other authors. In the empirical part, a Bayesian Vector Autoregressive (BVAR) model with sign restriction identification is employed. The model analyzes quarterly data from the period 2009–2024. The results of the conditional forecasts indicate that ad- ding variables related to the mortgage market partially improves the accuracy of inflation predictions, especially during periods of high volatility. The impulse responses (IRFs) confirm that shocks to mortgage expansion or rising housing prices increase inflation and can generate moderate inflationary pressures within the Czech economy. Conversely, rising mortgage rates lead to a decrease in both inflation and housing prices. The thesis confirms the hypothesis of a bidirectional relationship between mortgages and inflation. The findings support the concerns of the Czech National Bank (CNB) about inflationary pressures originating in the housing market and, ceteris paribus, may justify a tighter monetary policy stance.