Monetary policy and regional price boom in Sweden

This study measures the heterogeneous effects of monetary policy on regional house prices in Sweden 1991–2002. We use a multivariate persistent shock metric to examine the impact of short-term interest rate on the property market. We also segregate the influence of interest rate shocks and influence of local shocks to capture their respective effects on regional price boom. We find significant regional effect of monetary policy on housing markets. Interest rate effects dominate the influence of local price innovations in the core economic regions in Sweden. We further discuss the monetary transmission channels and highlight political implications.