The Connection Between Monetary Policy and Housing Prices: Public Perception and Expert Communication

TL;DR

This study explores how the public perceives the link between monetary policy and housing prices across several countries, revealing gaps in understanding and the influence of expert communication on beliefs.

Contribution

It provides cross-country empirical evidence on public perceptions of monetary policy's impact on housing markets and highlights the importance of credible communication strategies.

Findings

Most respondents understand the basic link between interest rates and house prices.

Knowledge of unconventional monetary policy is very limited among the public.

Beliefs are influenced by the source of information, with academic economists having a stronger impact.

Abstract

We study how the general public perceives the link between monetary policy and housing markets. Using a large-scale, cross-country survey experiment in Austria, Germany, Italy, Sweden, and the United Kingdom, we examine households' understanding of monetary policy, their beliefs about its impact on house prices, and how these beliefs respond to expert information. We find that while most respondents grasp the basic mechanisms of conventional monetary policy and recognize the connection between interest rates and house prices, literacy regarding unconventional monetary policy is very low. Beliefs about the monetary policy-housing nexus are malleable and respond to information, particularly when it is provided by academic economists rather than central bankers. Monetary policy literacy is strongly related to education, gender, age, and experience in housing and mortgage markets. Our results highlight the central role of housing in how households interpret monetary policy and point to the importance of credible and inclusive communication strategies for effective policy transmission.