The Central Bank of Luxembourg published Cahier d’études 202 examining whether the transmission of conventional monetary policy to Slovakia’s residential real estate sector is non-linear and depends on the state of the economy. The study finds that house prices and residential investment contract after a standard monetary policy tightening only during periods of strong growth and elevated interest rates and inflation, while the impact on mortgage credit flows appears limited. Methodologically, the analysis uses a smooth-transition local projection framework and identifies monetary policy shocks from high-frequency movements in the six-month OIS rate around European Central Bank policy announcements. It draws on monthly Slovak data from 2003 to 2023, including real activity indicators, residential property prices, household housing loans, housing supply proxies, household income and savings, and an index of borrower-related macroprudential measures, with regime transitions governed by real GDP growth, 12-month Euribor and HICP inflation. The results also indicate that monetary policy shocks tend to coincide with an easing of macroprudential policy, particularly when interest rates and inflation are low, potentially offsetting the expected restrictive effects of monetary tightening.
Central Bank of Luxembourg 2026-01-27
Central Bank of Luxembourg publishes study finding ECB monetary tightening affects Slovakia’s housing market mainly in high-growth regimes
The Central Bank of Luxembourg's Cahier d’études 202 examines the non-linear transmission of monetary policy to Slovakia’s real estate sector, finding that house prices and residential investment contract only during strong economic growth, high interest rates, and inflation. The study, using a smooth-transition local projection framework, also notes that monetary policy shocks often coincide with macroprudential policy easing, potentially offsetting the restrictive effects of monetary tightening.