The effects of monetary policy on consumption, housing wealth and house prices

an Australian perspective

Daehoon Nahm, Joseph Macri

Research output: Contribution to journalArticle


We employ a specially-structured VAR model to firstly examine the total effects of Australia's monetary policy changes on private sector variables, specifically, household consumption, housing wealth, and house prices, through impulse responses. We then utilise the special structure of the model to decompose the total effect of monetary policy changes on consumption into the direct effect from changes in the cost of credit, the indirect wealth effect from changes in house prices and housing wealth, and the feedback effect from the reaction of the Reserve Bank of Australia to changes in consumption, house prices and housing wealth. Our results suggest that a deliberate monetary policy shock has a significant effect on house prices, but only a marginal effect on consumption. We also introduce a novel approach to identify the elements of the impulse response function in decomposing the total consumption effect into direct, indirect and feedback effects.
Original languageEnglish
Pages (from-to)175-204
Number of pages30
JournalJournal of economic research
Issue number2
Publication statusPublished - 2016


  • monetary policy
  • housing wealth
  • house prices
  • structural var
  • impulse response
  • direct and indirect effects

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